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CQEffilGHT DEPOSm 




Outlines and Exercises In 
Economics 



BY 



REUBEN McKITRICK 

Professor of Economics 
lozva State Teachers College 



v^ 



PUBLISHED BY 

S. E. GREEN 

College Drug and Book Store 

CEDAR FALLS, IOWA 

1917 



H3I1I 

Ml6 



Copyright, 1917 

BY 

REUBEN McKITRICK 



/ 



SEP kQ 1917 



©CLA478805 



HAMMOND PRESS 

W. B. CONKEY COMPANY 

CHICAGO 



v ^■^ 



PREFACE 

In an address to the Bankers' Club of Chicago on the 
evening- of December i6, 1916, Mr. Frank A. VanderHp, 
President of the National City Bank of New York, made 
the following interesting statements in regard to the neces- 
sity for a more general study and comprehension of the 
principles of political economy. 

"There is a science of political economy. Some of its 
principles are as definite as laws of mathematics. It makes 
understandable principles and laws that can no more be 
broken with impunity by a nation than moral laws can be 
carelessly regarded by an individual. I believe sound think- 
ing in regard to the principles of political economy to be 
one of the greatest needs of this nation. A man counting 
on his fingers may evolve enough mathematics to carry 
him through, the needs of a simple life. A man unable to 
state a single principle of political economy may still think 
with what seems a sufficient degree of accuracy about his 
ordinary affairs. 

"But when that man, ignorant of the principles of 
political economy, joined to others equally ignorant, begins 
en masse and nationally to project his judgments beyond 
directing the simple affairs of his life, so that his discussions 
are weighed and give substantial direction to the course of 
society or the action of government, then the danger which 
may follow from such lack of understanding is appalling." 

The development of the student's ability to think accura- 
tely and sanely, to form sound judgments, and to express 
himself clearly and concisely in regard to questions of social 
and industrial importance is regarded as being the chief 
function of a course in Economics. Information is essential, 
however, for accurate thinking and a knowledge of the sub- 
ject is the first requisite of ability to speak. These Outlines 
and Exercises in Economics have been prepared, therefore, 

3 



4 OUTLINES AND EXERCISES IN ECONOMICS 

with the hope, that they would not only raise interesting 
questions for study and discussion, but that they would 
direct the students' attention to those sources of information 
and along those lines of thought which lead to intelligent 
decisions of public questions and to rational action in both 
public and private affairs. 

This book is not a textbook, nor a substitute for a text- 
book. It is intended to supplement the work provided in 
an economics textbook in much the same way that a labora- 
tory manual supplements the work of the text and the re- 
citation in physics and chemistry. Unless very unusual 
library facilities are available, the author regards the text- 
book method as an indispensable means of handling a begin- 
ning course in Economics. Nevertheless most texts have 
their shortcomings. No one text is a satisfactory source 
of information on all the points of inquiry which arise in a 
course in Economics ; neither does a single book always af- 
ford the clearness of explanation nor the aptness of illustra- 
tion that may frequently be found in other books. Conse- 
quently this book has been prepared with the hope that it 
would make immediately available for classroom use the 
wealth of material that exists in other books and sources. 
In the hands of the busy teacher, it should be a ready guide 
to the literature of the subject and a suggestive resource in 
providing exercises and problems for class use. In the 
hands of the pupil, it should be a manual which will direct 
his activities in a logical way toward a clearcut, definite 
comprehension of the fundamental principles of an interest- 
ing and practical science. 

A word further about books for supplementary use may 
not be out of place. The study of Economics is not a study 
of a book, but of a subject. Teachers readily recognize the 
fact, and other school officials soon should do so, that a 
satisfactory course in Economics can no more be given 
without suitable library facilities than a course in manual 



PREFACE • 5 

training or domestic science, without a shop or a kitchen. 
Just as a suggestion of what may be desirable and, in a sense, 
as a minimum of what should be provided, two lists of twenty 
books each have been printed in the pages immediately 
following. These may serve as a nucleus around which 
a very satisfactory library of books pertaining to this subject 
may be built up in a few years. 

The general method that has been followed in the succeed- 
ing pages has been to divide the whole course into sections 
corresponding to the principal subjects or topics to be treated. 
These topics have been arranged as nearly as possible with 
the view of getting a logical sequence and of obtaining a 
progressive development of the main theme of the course. 
This theme is regarded as being an accurate and impartial 
exposition of the organization of industrial society and of 
the laws and principles which govern man's activity within 
that society. The result of this kind of exposition, from the 
standpoint of the student, should be such an appreciation 
of the nature of modern industry and such a realization of 
the importance of man's relation to it as will lead to more 
intelligent consideration of its problems and more rational 
action regarding its future developments. 

Each section contains a topical outline which is intended 
to serve as a sort of chart or descriptive map of the work to 
be done in connection with that particular section. The exer- 
cises are then arranged in the main so as tO' follow the order 
of the outline. The author believes this sort of outline desir- 
able because without it students read an assignment just as 
an assignment, usually without any definite notion of what 
is to be gained from it ; with the outline, they may have 
a definite end in view and a definite motive for doing the 
work. It is hoped and believed the references given and 
problems set forth will be found pertinent to the work 
in hand since most of them have been carefully tested 



6 OUTLINES AND EXERCISES IN ECONOMICS 

out in classroom work at the Teachers' College. A few 
excerpts have been reprinted because of their unusual 
bearing on the subject to which they are related and be- 
cause they would otherwise be inaccessible to students. 
In conclusion the author desires to express his gratitude 
to his colleague, Mr. W. F. Mitchell, who has used many of 
the exercises and problems set forth in the succeeding pages 
and given many valuable criticisms and suggestions. He also 
desires to acknowledge his obligation to those authors and 
publishers who have so kindly permitted excerpts from their 
published articles and books, many of which are copy- 
righted, to be reprinted here. The details in each instance 
are listed in the bibliographical notes. 

Reuben McKitrick. 
Cedar Falls, Iowa. 
August 15, 1917. 



LISTS OF REFERENCE BOOKS 

I. The following list contains the names of twenty 
books which are standard texts in Economics and which 
should be accessible to every student that takes a beginning 
course in the subject. 

Bogart, E. L., Business Economics; La Salle Extension 

University, Chicago, 1916. 
Bogart, E. L., Economic History of the United States; 

Revised Edition; Longmans, New York, 1913, $1.75. 
Bogart, E. L. and Thompson, C. M., Readings in the Econo- 
mic History of the United States; Longmans, New York, 

1916, $2.80. 
Bullock, Charles J., Introduction to the Study of Economics ; 

Fourth Edition, Revised and Enlarged ; Silver, Burdette 

and Company, New York, 19 13, $1.28. 
Day, Clive, A History of Commerce; Longmans, New York, 

1907, $2.00. 
Ely, Richard T., Outlines of Economics; Third Edition; 

MacMillan, Chicago, 1916, $2.25. 
Ely, Richard T. and Wicker, George Ray ; Elementary 

Principles of Economics, Revised Edition; MacMillan, 

Chicago, 1917. 
Fetter, Frank A., Economics ; The Century Company, 

Chicago, 2 Vols. 191 5 and 1916, $1.75 each Vol. 
Fetter, Frank A., Source Book in Economics; The Century 

Company, Chicago, 191 2, $1.30. 
Gide, Charles, Political Economy; An Authorized Transla- 
tion from the Third Edition (1913) of the "Cours 

D'Economie Politique" ; Heath, Chicago, $3.00. 
Hamilton, W. H., Citrrent Economic Problems; University 

of Chicago Press, Chicago, 1915, $2.75. 
Haney, L. H., Business Organization; MacMillan, Chicago, 

1913, $2.00. 

7 



8 OUTLINES AND EXERCISES IN ECONOMICS 

King, Wilford L, The Wealth and Income of the People of 

the United States; MacMillan, Chicago, 19 15, $1.50. 
Marshall, Wright and Field, Materials for the Study of 

Elementary Economics; Second Edition ; University of 

Chicago Press, Chicago, 1915, $2.75. 
Moulton, Harold G., Money and Banking; The University 

of Chicago Press, Chicago, 191 6, $3.00. 

Nourse, E. G., Agricultural Economics; University of 
Chicago Press, Chicago, 19 16, $2.75. 

Seager, Henry R., Principles of Economics; Holt, Chicago, 
1913, $2.25. 

Seligman, E. R. A., Principles of Economics; Fifth Edition, 
Revised; Longmans, New York, 1912, $2.50. 

Taussig, Frank W., Principles of Economics; Second Edi- 
tion, Revised; MacMillan, Chicago, 2 Vols. 1915, $4.00. 

Willis, H. Parker, American Banking; La Salle Extension 
University, Chicago, 1916, $2.00. 

2. The following list contains the names of twenty 
books which are very desirable for reference purposes in 
a beginning course in Economics but which are not nearly 
so indispensable as those on the preceding list: 

Carlton, Frank T., History and Problems of Organized 
Labor; Heath, Chicago, 191 1, $2.00. 

Carver, T. N., Principles of Rural Economics; Ginn, 
Chicago, 191 1, $1.30. 

Carver, T. N., Selected Refidings in Rural Economics; Ginn, 
Chicago, 191 6, $2.80. 

Commons, John R. and Andrews, John B., Principles of 
Labor Legislation; Harpers, New York, 1916, $2.00. 

Ellwood, Charles A., Sociology and Modern Social Prob- 
lems; Revised and Enlarged Edition ; American Book 
Company, Chicago, 1913, $1.00. 



LISTS OF REFERENCE BOOKS 9 

Ely, Richard T., Property and Contract in Their Relation 
to the Distribution of Wealth; MacMillan, Chicago, 2 
Vols., 191 5, $4.00. 

Gillette, John M., Constructive Rural Sociology; New Edi- 
tion, Revised and Enlarged ; Sturgis and Walton, New 
York, 19 16, $1.60. 

Hayes, E. C, Introduction to Sociology; Appleton, New 
York, 1915, $2.50. 

Hourwich, I. A., Immigration and Labor; Putnam's, New 
York, 1912, $2.50. 

Redfield, William C, The New Industrial Day; The Century 
Company, Chicago, 1912, $1.25. 

Robinson, Maurice H., Organizing a Business; La Salle Ex- 
tension University, Chicago, 191 5. 

Ross, E. A., Old Worlds in the New; The Century Company, 
Chicago, 1914, $2.40. 

Ryan, John A., Distributive Justice; MacMillan, Chicago, 
1916, $1.50. 

Sanford, A. H., The Story of Agriculture in the United 
States; Heath, Chicago, 19 16, $1.00. 

Skelton, O. D., Socialism, a Critical Analysis; Heath, 
Chicago, 191 1, $1.50. 

Spargo, John, and Arner, George Louis, Elements of Social- 
ism; MacMillan, Chicago, 1912, $1.50. 

Taussig, Frank W., Some Aspects of the Tariff Question; 
Harvard University Press, Cambridge, 1915, $2.00. 

Van Hise, Charles R., Concentration and Control, a Solution 
of the Trust Problem in the United States; Revised Edi- 
tion, MacMillan, Chicago, 1914, $2.00. 

Weld, L. D. H., The Marketing of Farm Products; MacMill- 
an, Chicago, 1916, $1.50. 

Wilson, Woodrow, The New Freedom; Doubleday, Page & 
Co., New York, 1913, $1.00. 



CONTENTS 



PART I. INDUSTRIAL SOCIETY AS A PRO- 
DUCING ORGANIZATION 

Page 

A. The Industrial Field, Its Essential Elements. 

1. Population 13 

2. Natural Resources 15 

B. Main Divisions of the Industrial Field. 

3. Agriculture 17 

4. Mining and Other Extractive Industries ... 20 

5. Manufacturing 22 

6. Transportation 24 

7. Commerce 26 

8. Occupations and Professions ..;....:. 28 

C. Conditions Giving Direction to Industrial Activity. 

9. Competition and Industrial Freedom 36 

10. Private Property 41 

11. Contract 50 

12. Monopoly 52 

13. Public Authority 55 

D. The Factors of Production. 

14. Land 61 

15. Labor 63 

16. Capital 68 

17. Organization of the Factors of Production ... 71 

E. Business Organization. 

18. The Individual in Business Organization . •. . . 76 

19. The Corporation 78 

20. The Trust 81 

21. Co-operation 85 

22. Governmental Enterprise 87 

11 



12 CONTENTS 

PART II. VALUE, PRICE, AND EXCHANGE 
IN INDUSTRIAL SOCIETY 

Page 

23. The Market 89 

A. Value. 

24. Utility and Value .92 

25. Cost and Value 95 

B. Price. 

26. Competitive Price , 97 

27. Monopoly Price 101 

C. Exchange. 

28. Money 103 

29. Money (Concluded) 105 

30. Credit . 107 

31. Banks and Banking . . . . . . . ... . . . 108 

32. Banks and Banking (Concluded) .■ . 110 

33. International Trade 112 

34. The Tariff Question 114 

PART IIL DISTRIBUTION OF WEALTH AND 
INCOME IN INDUSTRIAL SOCIETY 

35. The General Aspects of Distribution 118 

36. Rent 122 

37. Wages 124 

38. Labor Problems 127 

39. Interest . . . .^ 132 

40. Profits 134 

41. Socialism . 136 



PART I. INDUSTRIAL SOCIETY AS A 
PRODUCING ORGANIZATION. 



A. The Industrial Field. Its Essential Elements. 

I. Population 
Outline : 

1. Growth of population. 

a) Past and present rates of growth. 

b) Probable future rate of growth. 

c) Changes in the growth of population in Iowa. 

2. Characteristics of American People. 

3. Relation of population to the means of subsistence in 
America. 

4. Problems of population. 

a) "Race suicide." 

b) Congestion in cities. 

5. Constituent elements in the population. 

a) Native white stock. 

b) Negroes. 

c) Immigrants. 

6. Duration of human life. 

Exercises : 

1. Describe the growth of population as it has taken 
place in the United States during the past century. Ely, 64 ; 
Seager, 30; Fetter, i : 426-31. 

2. State the probable future rate of growth of popula- 
tion in the United States as estimated by Dr. Henry Gannett. 
Materials, 108. 

3. The federal census for 19 10 shows that the popula- 
tion of Iowa diminished 0.3 of one per cent, during the 
decade 1900-10. Account for this decrease. (See Census 
of Iowa, 1915, pp. xvii-xviii ; also, Brindley, John E., A 

13 



14 OUTLINES AND EXERCISES IN ECONOMICS 

Study of Iowa Population, Engineering Experiment Station, 
Bulletin No. 2^.) 

4. Point out the relationship that exists between popula- 
tion and the means of subsistence. Ely, 64-65 ; Seager 30 ; 
Fetter, i : 431. 

5. State the problems of population as they exist at the 
present time. Ely, 65-66. 

6. Do economic conditions affect the rate of growth of 
the population ? Materials, 1 1 1 ; Ely, 434-7. 

7. State the causes of the growth of cities as pointed 
out by Adna F. Weber. Materials, 134. 

8. Which is growing the faster in your home state, 
the urban or the rural population? Give the statistics to 
support your answer. 

9. State the tendency regarding the rate of growth of 
the native white element of the population of the United 
States. Ellwood, Sociology and Modern Social Problems, 
Rev. ed. 144-6. 

10. Is this tendency a national menace? Taussig, 2: 

235-7- 

11. In what sense is the negro element of the popula- 
tion an economic problem? Ely, 66-8; Seager, 31 and 32. 

12. Describe- the immigrant movement to America 
during the past century as shown by the graph in Ma- 
terials, 137. ' I 

13. In what senses does the immigrant element in 
our population constitute a problem in the economic de- 
velopment of the United States? Ely, 68-74; Seager, 

30-35- / ■ : : ■ n! *i 

14. What was Francis A. Walker's view regarding 
the influence of immigration on the growth of population 
in the United States? Give his argument. Materials, 146- 
49- 



THE INDUSTRIAL FIELD 15 

15. Can human life be prolonged? Is the effort eco- 
nomically worth while? Materials, 123-130; same in Bo- 
gart and Thompson, 851-3. 

2. Natural Resources 
Outline : 

1. Meaning of the term, "Natural Resources." 

2. Description of the natural resources of the United States. 

3. Problems pertaining to natural resources. 

a) Relation of the growth of population to natural 
resources. 

b) Wasteful methods of development. 

c) Private ownership and public policy. 

d) Co-operation between 'state and federal governments. 

4. Influence on the economic development of the United 
States. 

5. Conservation. 

Exercises : 

1. Make a list showing the principal natural resources 
of the United States. Materials, 77-102. 

2. Briefly describe each of these resources with parti- 
cular reference to its quantity, relative importance, present 
use, and possibilities for future development. Materials, 
77-102; Bogart, Business Economics, chapters 2 and 3. 
Fetter, i : 442-55- 

3. In a similar way list and describe the natural resour- 
ces of your own state. 

4. What has been the influence of our natural resources 
on the economic development of the United States? Ely, 
74-5 ; Bogart, 40. 

5. What has been the effect of an abundance of natural 
resources on wages in the United States? Bogart and 
Thompson, 457. 



16 OUTLINES AND EXERCISES IN ECONOMICS 

6. Give a brief account of the ways in which we are 
wasting or not using our natural resources properly and 
'give statistical evidence of the extent to which this is true. 
Materials, 77-102; also Bogart, Economic History of the 
United States, pp. 524-6. 

7. To what extent are the natural resources of the 
United States now privately owned? Materials, loi ; E^ly, 

75-^- 

8. Why is co-operation between private owners and 

between the state and federal governments necessary for the 
proper future development of our natural resources ? Mate- 
rials, 101-2. 

9. What is meant by the term, ''conservation ?" Bogart, 
Economic History of the United States, S^^~7' 

10. State two opposing views of conservation. Bogart, 

so- 
li. Point out three economic considerations which 

affect the problem of conservation. Do you think these influ- 
ences tend to favor or retard conservation at the present 
time? Materials, 102-4. 



B. Main Divisions of the Industrial Field. 

3. Agriculture 
Outline : 

1. Relative importance as an industry in the United States. 

a) As to number of persons engaged. 

b) As to value of the products. 

2. Influences affecting its importance. 

a) Abundance of fertile land. 

b) Favorable system of land tenure. 

c) Personal character of farmer. 

d) Existence of a world market. 

3. Nature of the industry. 

a) Individualistic, i. e. the individual farm is the eco- 
nomic unit of production and the'individual farmer 
is the dominant factor in the industry. 

^) A profit-seeking industry. 

c) A competitive industry. . 

4. Tendencies. 

a) Former, large production per man. 

b) Present, increased production per acre. 

Exercises : 

1. State the relative importance of the agricultural 
industry as indicated by the number of persons engaged in 
it and by the value of its products. Judging from these 
points of view, is the industry increasing or declining in rel- 
ative importance? Abstract of the 13th Census; Ely, 74-5; 
Bogart, 18. 

2. What has been the influence of a large body of fer- 
tile land in America on agricultural development. Bul- 
lock, 42-3. 

17 
3 



18 OUTLINES AND EXERCISES IN ECONOMICS 

3. Make a statement showing the influence of the use 
of machinery in agriculture in America on the productivity 
of the worker, the number of persons engaged, and the cost 
of production ptr unit of product. Materials, 164-70; Ely, 
84-5; Sanford, Story of Agriculture, 246-65. 

4. What is a system of land tenure? 

5. What is the influence of a system of land tenure on 
the agricultural population ? Contrast the land tenure poli- 
cies of Europe with that of the United States in this respect. 
Bullock, 14-5. 

6. Describe the system of land tenure which obtains in 
the United States and specifically point out the influence 
which this system has had on our agriculture. Bogart and 
Thompson, 601-5; Bullock, 41. 

7. Point out the influence of a foreign market on the 
development of American agriculture. Coman, Industrial 
History, 258-60. 

8. What are the personal characteristics of the Amer- 
ican farmer which distinguish him from the farmers of all 
other countries ? Walker, Making of the Nation, 66-7 ; Bo- 
gart, Economic History of the United States, 144. 

9. Beginning with the manorial economy in England, 
point out and describe the principal changes that have taken 
place in the agricultural industry since the Middle Ages. Ely, 
37-9, 40-2, 47-9, 50-1 and 84-5. 

10. Describe the agriculture of "a generation ago," 
and contrast the conditions that prevailed on the farm then 
with those on a farm with which you are most familiar. 
Nourse, 63-6. 

11. Describe the contest which took place between the 
settler and the cowboy on the frontier of American agricul- 
ture. Why is this a significant picture of industrial life? 
Nourse, 66-8. 

12. In what respects is agriculture a "profit-seeking" in- 
dustry? Is the agriculture of today any more of a profit- 



MAIN DIVISIONS 19 

seeking industry than that of a generation ago? Nourse, 
68-69, 72-75, and 246-48. 

13. The tendency in agriculture at the present time is 
said to be "from extensive to intensive farming," from large 
production "per man to large production per acre." How 
do you account for this tendency ? Seager, 37-38 ; Carver, 
Rural Economics, iio-ii. 

14. Compare the results obtained respectively by the 
Bavarian farmer and by the American farmer per acre 
and per man. Carver, Selected Readings in Rural Econom- 
ics, 148-50. 

15. "Intensive agriculture helps society but hurts the 
farmer." Why? Waters, Essentials of Agriculture, 6-7; 
Fetter 2 : 396-402. 

16. Contrast agriculture with manufacturing as to the 
size of the industrial unit and account for the difference. 
Taussig, 1 : 56-57. 

17. Contrast the income of the farmer in the United 
States with the income of farmers in other parts of the 
world ; with- the income of other workers in the United 
States. Waters, Essentials of Agriculture, 5-6; Nourse, 
833-37 and 890-92; Fetter, 2:390-1; and Carver, Selected 
Readings in Rural Economics, 630-5. 

18. As population increases, should the land be divided 
into smaller tracts for a large number of small farms or 
should the present size of farm be maintained and future 
increases in population be expected to find their livelihoods 
in other industrial pursuits? 



20 OUTLINES AND EXERCISES IN ECONOMICS 

4. Mining and Other Extractive Industries 
Outline: 

1. Relative importance of mining" as an industry. 

a) As to number of persons engaged. 

b) As tO' value of the products. 

2. Nature of the industry. 

a) Corporate. 

b) Wage-earning. 

c) Competitive. 

3. Tendencies. 

a) Toward concentration. 

b) Toward monopoly. 

4. Relative importance of lumbering as an industry. 

a) As to number of persons engaged. 

b) As to value of the products. 

5. Nature of lumbering as an industry. 

6. Tendencies toward monopoly in lumbering. 

Exercises : 

1. Give a brief description of the development of the 
mining industry in America. Seager, 40-3. 

2. In what metals does the United States lead the pro- 
duction of the world? Seager, 43. 

3. What is the relation of the iron and coal industries 
of the United States to the importance of the iron and steel 
business of the country ? Bullock, 74-6 ; Bogart and Thom- 
son, Readings in Economic History^ 752-4- 

4. Give the relative importance of the mining industry 
in the United States, using the number of persons engaged 
in the industry as the basis of classification. Does the order 
change any if the value of the products is taken as the 
basis of classification? Abstract of the 13th Census, 541. 

5. To what extent do corporations as compared with 
individuals prevail in the ownership and management of 



MAIN DIVISIONS 21 

mines in the United States ? Contrast mining with agricul- 
ture in this respect. Abstract of the 13th Census, 552-3. 

6. What proportion of the persons engaged in mining 
are proprietors and officials ? ' Salaried employes ? Wage- 
earners? Abstract of the 13th Census, 548. 

7. What is the situation in regard to unemployment and 
to hours of work in the mining industry? Abstract of the 
13th Census, 550-1. 

8. Describe the tendency toward concentration in man- 
agement in the mining industry in the United States. Ab- 
stract of the 13th Census, 553. 

9. Describe the tendency toward monopoly in the min- 
ing industry manifested by the anthracite coal combination. 
Seager, 408-11. 

10. Why is private ownership of mines hard to defend? 
Gide, Political Economy, 544-9. 

11. If a man owns a good piece of agricultural land in 
the United States, should he also be entitled to all the mineral 
wealth that might be found under the surface of his farm? 

12. What is the rule and the tendency in the United 
States regarding private ownership of mineral wealth ? Ely, 
675-7; Ely, Property and Contract, i: 154-5 and 161-2. 

13. What is the relative importance of the lumbering 
industry in the United States? 

14. What has been the effect of the policy of the federal 
government regarding forest lands? What changes are 
being made in this policy? Ely, Outlines, 674-5. 



22 OUTLINES AND EXERCISES IN ECONOMICS 

5. Manufactures. 
Outline: 

1. Historical development. 

a) The ''handicraft" industry. 

b) The factory system. 

2. The relative importance of manufacturing. 

3. Nature of the industry. 

a) A machine industry. 

b) A corporate industry. 

c) A wage earning industry. 

4. Tendencies in the industry. 

a) Toward concentration. 

b) Toward integration. 

c) Toward monopoly. 

5. Influence of the nature and tendencies in manufactures 
on industrial freedom. 

Exercises : 

1. Point out at least three striking characteristics of the 
so-called ''domestic system" of industry in England as related 
by Arnold Toynbee ; state also definitely the condition of the 
worker in this system. Hamiltoii, Current Economic Prob- 
lems, 38-42. 

2. Describe the changes which the Industrial Revolution 
brought into manufacturing. Ely, 51-3. 

3. What is a factory? What are the essential elements 
of the factory system? Bogart, 49. 

4. Describe the method of the "factory system," point 
out the necessities for its successful operation, and indicate 
the results which may be expected. Hamilton, 59-60. 

5. What was the efifect of the Industrial Revolution on 
the growth and distribution of the population of England; 
also upon agriculture, manufactures, the distribution of 



MAIN DIVISIONS 23 

wealth, and the separation of people into classes ? Materials, 
11-17. 

6. May the use of the factory system be expected to 
have similar results in the United States? 

7. What is the relative importance of manufactures in 
the United States, using the number of persons engaged in 
the industry and the value of the products obtained as bases 
of comparison? 

6. What is the nature of the manufacturing industry of 
the United States at the present time ? Ely, 86-7. 

7. What have been the effects of capitalistic methods 
and corporate management of the manufacturing industry? 

Ely, 87. 

8. Describe the tendency toward concentration in the 
manufacturing industry of the United States as set forth 
by Professor Taussig, i : 49-52 and 59-60. 

9. Define concentration in industry. 

10. Describe the tendency toward integration in in- 
dustry. Taussig, 60-64. 

11. Define integration; state also the motives which 
lead toward concentration and integration. Taussig, i : 60 
and 64. 

12. To what extent, if any, does concentration and in- 
tegration result in monopoly? 

13. Are such combinations contrary to law? Follow 
the accounts in current periodicals of the suits now being 
conducted by the government against the United States 
Steel Company and the International Harvester Com- 
pany. 

14. As a young person about to engage in industry, 
would you rather begin as an employee in a highly concen- 
trated or integrated industry, or as an employee in a small 
business, such as a farm or a small manufacturing plant 
which you might hope to own some day? 



24 OUTLINES AND EXERCISES IN ECONOMICS 

6. Transportation 
Outline : 

1. Extent and importance of railway transportation in the 

United States. 

2. Monopolistic character of railway transportation. 

3. Tendencies in railway transportation. 

a) In regard to government regulation. 

b) In regard to government ownership and operation. 

4. Ocean transportation. 

a) Decline in importance. 

b) Reasons for this decline. 

c) Plans for future growth and development. 

5. Inland water transportation. 

a) Meaning of the term. 

b) Relative importance. 

c) Reasons for decline of traffic on the Mississippi 
river and its tributaries. 

d) Future relation between railway and inland water 
transportation facilities. 

Exercises : 

1. Tell what you can of the extent and importance of 
the railway industry in the United States. Seager, 29 ; Ham- 
ilton, 346. 

2. On the basis of the number of persons engaged in the 
business, how does the railway industry rank with agricul- 
ture, manufactures and other industries ? 

3. Why is the railway industry a monopolistic business? 
Seager, 424-5 ; Ely, 560-1 ; Hamilton, 352-4. 

4. Give a brief description of the movement toward 
combination and consolidation in the railway industry of the 
United States. Ely, 90-93. 



MAIN DIVISIONS 25 

5. Give a concrete illustration of the influence of linear 
consolidation of railway lines on competition in this industr}^ 
Bullock, 345. 

6. What changes have taken place in the activity of the 
American merchant marine in the past fifty years? Bogart 
and Thompson, 651-2. 

7. What are the causes for the decline of our merchant 
marine? Bullock, 67-9; Bogart, 194-6; Day, History of 
Commerce, 545-47. 

8. What was President McKinley's view regarding our 
merchant marine? Bogart and Thompson, 653-4. 

9. What is the policy of the United States shipping bill 
passed by Congress during the summer of 1916? What are 
the main provisions of this bill. See Readers' Guide to Cur- 
rent Literature. 

10. What is the personnel of the commission created by 
this bill? See same source. 

11. Point out at least four reasons for the decline of traf- 
fic on the Mississippi river. Are these obstacles insurmount- 
able? Bogart and Thompson, 667-675. 

12. What is the meaning of the term, "Pork barrel," as 
applied to legislation relating to rivers and harbors ? 

13. What should be the future relation between the rail 
and the water transportation systems of the United States? 
Bogart and Thompson, 675-80. 



26 OUTLINES AND EXERCISES IN ECONOMICS 

7. Commerce 
Outline : 

1. Defined and distinguished from other industries. 

2. Relative importance. 

a) As an industry. 

b) As an economic function. 

3. Nature. 

a) Corporate. 

b) Competitive. 

4. Kinds. 

a) Foreign. 

b) Domestic. 

c) Relative importance of each. 

5. Tendencies. 

a) Toward large scale organization. 

b) Toward elimination of middlemen. 

c) Toward development of co-operative agencies. 

Exercises : 

1. Define commerce; look up a number of different defi- 
nitions and compare them. 

2. Distinguish commerce from transportation. Robin- 
son, Business Organization, 19. 

3. Distinguish commerce from manufacturing and from 
agriculture. 

4. Should banking, insurance, and brokerage and com- 
mission businesses be regarded as commerce? Give rea- 
sons for your answer. 

5. On the basis of the number of persons engaged, rank 
commerce with the other industries studied as to its 
relative importance as an industry. 

6. Which is the more important economic function, to 
grow food stuff on a farm or to market it ; to manufacture a 
machine or to sell it? Which function at the present time 



MAIN DIVISIONS 27 

claims the larger share of the selling? price to the consumer. 
Nourse, 530-3; Materials, 406-14; Weld, Marketing Farm 
Products, 175-8. 

7. Describe the foreign commerce of the United States 
with particular reference to its quantity and character ; also 
account for our commercial development in this particular. 
Bogart, Economic History of the Unite'd States, 508-18. 

8. Contrast our commerce in agricultural products with 
that in manufactured products. Bogart, 508-9. 

9. Contrast the volume of our foreign trade with that of 
our domestic trade. Bogart and' Thompson, 644-5. 

10. What are some of the interesting changes that are 
coming into the mechanism of our domestic trade? Bo- 
gart, Economic History of the United States, 519-20; Ely, 
618-22. 

11. Compare the per capita growth of internal com- 
merce in the United States with the per capita increase in 
wealth. Bogart and Thompson, 646. 

12. Tell something of the importance and influence of 
the country store as a trading center and as a factor in the 
social, political and economic life of the community. Day, 
History of Commerce, 474-6. 

13. What is the influence of direct selling by manufac- 
turers upon the middlemen and retailers? Point out also 
the influence of department stores and mail order houses 
on the retail business in the United States. Bogart and 
Thompson, 646-51. 



28 OUTLINES AND EXERCISES IN ECONOMICS 

8. Occupations and Professions 
Outline : 

1. Classification of occupations and professions. 

a) As to the nature of the work performed. (Census 
classification). 

b) As tO' the relation of the worker to his work. 

.v) Wage earners. 

3;) Salaried employes. ' • 

^) Independent enterprisers. 

2. The working force. 

a) Total number of persons gainfully employed. 

b) Distribution of the working force throughout the 
various industries. 

c) Distribution according to the age and sex of the 
workers. 

d) Distribution according to the relation of the worker 
to his work. 

3. Possibilities of economic freedom for the individual 
worker. 

a) The meaning of "freedom of enterprise in America." 

b) Present tendencies regarding freedom of enterprise. 

Exercises : 

1. What distinction would you make between an indus- 
try, an occupation, and a profession. 

2. Make a list of the principal industries in the United 
States and specify a few of the occupations that will be found 
in each. What occupations, if any, are common to all indus- 
tries? About how many different occupations are listed in 
the Census classification? Census Reports, 13th Census, 
Vol. 4, 6-8, and 211-218; Materials, 183-8. 

3. Select three of the most important industries in your 
community and make a list of the different occupations rep- 
resented in each. 



MAIN DIVISIONS 29 

4. Distinguish between a wage earner, a salaried em- 
ploye, and an independent enterpriser. Are there any social 
distinctions between these groups of workers, and if so, 
upon what basis do such distinctions rest? Materials, 640-1. 

5. Which one of the three groups of workers mentioned 
in the preceding exercise is most numerous in your commu- 
nity ? Are the social distinctions noted above very apparent? 

6. How many persons in the United States are gain- 
fully employed? What proportion of the total population 
do they constitute? Ely, 129. 

7. Tell what you can of the proportionate distribution 
of these workers among the five main industrial groups, 
What significant changes are coming about in the relative 
importance of these groitps? Ely, 130. 

8. What proportion of the working population are 
children under 16 years of age? In what respects is child 
labor an economic problem? Ely, 129 and 476-9; Fetter, 2: 

317-8. 

9. What are the provisions of the federal child labor 
law passed in 1916? Ely, 478. 

10. Under what conditions may child labor be employed 
in your community ? 

11. What part of the working population are women? 
Ely, 129. 

12. Discuss the subject of "women in industry" with 
special reference to the influence of the factory system and 
of the law on their employment, the occupations that are 
open to them, and the special senses in which their employ- 
ment constitutes an economic problem. Adams and Sumner, 
Labor Problems (1908), 19-30, 37-47, and 51-58; Carroll 
D. Wright, Practical Sociology (1909), 208-215; Nezv In- 
ternational Encyclopedia (Revised Edition), Vol. 23, 770- 
I ; Federal Commission on Industrial Relations, Final 
Report (1916), 71-73; Ely, 479-80. 



30 OUTLINES AND EXERCISES IN ECONOMICS 

13. How does that part of the population not gainfully 
employed get its living? Do you think that the propor- 
tion between this group and the one gainfully employed 
is as it should be? If not, specify the changes which you 
think should be brought about ? 

14. From the following table prepared by Mr. W. I. 
King,''' figure out the proportionate distribution of work- 
ers in 1910 between independent enterprisers, salaried 
employes and wage earners. Compare the number of in- 
dependent enterprisers and the number of employed per- 
sons in 1910 with those of 1850, and show which groups 
are proportionately increasing or diminishing. 

Estimated Distribution of Persons Gainfully 
Employed in Continental United States 





Total 
Number in 
Thousands 


Number of 
Entrepre- 
neurs in 
Thousands 


Number of Employees in Thousands 


year 


All 

Employees 


Salaried 
Persons 


Wage 
Workers 


1850 
i860 
1870 
1880 
1890 
1900 
I9IO 


6,080 
8,240 
12,510 
17,390 
23,320 
29,070 
37,550* 


2,200 
3,150 
4,270 
5,600 
7,100 
8,720 
9,350 


3,880 
5,090 
8,240 
11,790 
16,220 
20,350 
28,200 


300 
520 
810 
1,260 
1,850 
3,190 
5,950 


3,580 
4,570 
7,430 
10,530 
14,370 
17,160 
22,250 



♦Recorded numbers reduced by 617,000 on account of probable errors 
mentioned on pages 28 and 29 of Vol.4. 13th Census of U. S. 



15. When we speak of ''freedom of enterprise in Amer- 
ica," what do we mean ? What are some well recognized lim- 
itations to this freedom? Ely, 26-28. 

16. Why is it important that men should be free to 
choose their occupations? Seager, 248-9. 

17. What are some considerations which influence 
men's choice of an occupation? Seager,' 253-5; Fetter, i: 
195-6. 



* Wealth and Income of the People of the United States^ p. 
right by The MacMillan Company. (1915.) 



264. . Copy- 



MAIN DIVISIONS 31 

i8. "In our day we see opportunities for the mass of 
men decreasing in range and variety and possibilities. We 
see wealth becoming more concentrated and less responsi- 
ble in the hands of a growing class which has not earned it 
and which gives no service in return for the privileges en- 
joyed." The foregoing statement is taken from a recent 
editorial in the Chicago Tribune. Specify the respects in 
which you think it is a correct or an incorrect statement re- 
garding economic freedom for the individual in his choice 
of an occupation and pursuance of it. 

19. During perhaps the greater part of the nineteenth 
century, men in America had as a part of their economic 
freedom the hope and the possibility of rising from one po- 
sition to a better one — from a hired laborer on a farm to 
tenant and finally owner of the farm, or from clerk in a 
store or wage earner in a factory to partnership in the busi- 
ness and ultimate ownership of it. In the following selection 
from Adams and Sumner's Labor Problems* (pages 5-6), 
point out the particulars in which the foregoing conditions 
of freedom may- not still exist and the reasons therefor : 

''The great majority of men do not possess the abilities or 
the opportunities to secure the large capital necessary for 
the successful conduct of a modern business. For the masses, 
indeed, it is true and increasingly true, that once a wage 
earner always a wage earner. This permanency of status 
makes the labor problem in one respect a class struggle. The 
laborer feels that he is permanently held within a class whose 
interests are, in part, antagonistic to those of the employers 
with whom he bargains and higgles over wages. Fortunately 
or unfortunately, too, industry becomes more highly capi- 
talized as time passes, making it increasingly difficult for 
men to acquire industrial independence, and steadily reduc- 
ing the proportionate number of those who can set up estab- 
lishments of their own. To some it seems that the complex- 
ity of industry has outrun human ability, leaving a smaller 
and smaller proportion of men who are fitted to direct and 
control. Others explain the phenomenon by asserting that, 

♦Copyright by The MacMillan Company. (1908.) 



32 OUTLINES AND EXERCISES IN ECONOMICS 

owing to a mechanical tendency towards centralization of 
business, a decreasing- proportion of men have the excep- 
tional means and opportunities to rise to industrial inde- 
pendence. Whatever the explanation, there can be no 
doubt of the fact that the ultimate control of industry is 
passing into relatively fewer and fewer hands, with the 
result that the power and wealth of the few who do reach 
the top are so enormously swelled that they would 
threaten — if misused — the purity and stability of the gov- 
ernment itself." 

20. Professor Cooley in his Social Organization"^ 
(pages 245-6) describes a new aspect of economic free- 
dom which he thinks is coming to be more important 
than the mere ability to rise from one position or class 
to another. Discuss Mr. Cooley's view with particular 
reference to what should be done to bring about more 
"justice, opportunity and humane living" among the less 
privileged groups. 

"Class organization is not, as some people assert, neces- 
sarily hostile to freedom. All organization is properly, a 
means, through which freedom is sought. As conditions 
change, men are compelled to find new forms of union 
through which to express themselves, and the rise of indus- 
trial classes is of this nature. 

"In fact, the question of freedom, as applied to class con- 
ditions, has two somewhat distinct aspects. These are : 

• I. Freedom to rise from one class into another, freedom 
of individual opportunity. . . . This is chiefly for the 
man of exceptional capacity and ambition. It is important, 
but not more so than the other, namely : 

2. Freedom of classes, or, what is the same thing, of 
those individuals who have not the wish or power to depart 
from the sphere of life in which circumstance has placed 
them. It means justice, opportunity, humane living, for the 
less privileged groups as groups ; not opportunity to get out 
of them, but to be something in them ; a chance for the team- 
ster to have comfort, culture and good surroundings for him- 
self and his family without ceasing to be teamster. 

"The fi rst of these has been much better understood in 

♦Copyright by Charles Scribner's Sons. (1909.) 



MAIN DIVISIONS 33 

America than the second. That it is wrong to keep a man 
down who might rise is quite famihar, but that those who 
cannot rise, or do not care to, have also just claims is almost 
a novel idea, though they are evidently that majority for 
whom our institutions are supposed to exist. Owing to a 
too exclusive preoccupation with ideals of enterprise and 
ambition, a certain neglect, and even reproach, have rested 
upon those who do quietly the plain work of life." 

In the following selection President H. H. Seerley gives 
a good account of the opportunities open to the early pioneer 
and of the personal qualities necessary for individual success 
under such circumstances. Contrast these opportunities 
with those of the present day and indicate the personal char- 
acteristics now required for industrial success and individual 
prosperity : 

''Opportunities. It is appropriate to pay high tribute to the 
Iowa pioneer who had the courage to come into this beautiful 
land when it was a wilderness and by taking possession and by 
developing its resources and possibilities has made this great 
state the wonderful commonwealth that it is today. It is 
too often customary to assume that the youth of today does 
not and will not have equivalent opportunities for success and 
progress as were general in those pioneer times. It is true 
that the special opportunity to procure such productive land 
at $1.25 an acre does not exist today, but such a statement as 
securing cheap land for a home is not the whole story of the 
causes of the remarkable civilization that exists today. It 
must be remembered that Iowa was not a successful country 
of itself in which to live as it remained for these early settlers 
to use their industry, their thrift, their sacrifice and their 
capability in producing the final conditions that developed 
and expanded in greatness into a successful country. The 
pioneer had no market for the results of his industry, he had 
to find it ; he had no schools for his children, he had to found 
them ; he had no railways, not even waeon roads for trans- 
portation of his products, he had to build them ; he had no 
daily mails to bring him the report on the doings of civiliza- 
tion, he had to get along without them ; he had no newspapers 
to tell him what to do with his farming or how to meet the 



34 OUTLINES AND EXERCISES IN ECONOMICS 

exigencies of climate or isolation, he had to do his own think- 
ing; he found no openings for employment at salaries that 
were attractive and he became his own master of finance ; 
he had few qualified physicians to treat him or his family in 
illness and he trusted much to Providence and sanitation ; 
he had no lawyers to give him advice on business points that 
needed elucidation and he informed himself as tO' his rights. 
"The kind of encouragement he had was chiefly an oppor- 
tunity to make sacrifices, to endure hardships, to work con- 
tinually for many years in order that civilization might be 
established, to co-operate that public enterprises might be 
organized and that ideals and standards of society and of 
prosperity might be adopted. This work of opening a new 
country, of building up industries, of developing markets, 
of founding a school system, was one continuous struggle 
for the mastery. Out of these difficulties came conditions 
that required the employment of his own initiative, that de- 
manded surplus energy for a contest tO' attain self depend- 
ence, that imposed the necessity for self reliance, thus devel- 
oping a people who became constructive, strong and success- 
ful to the highest degree. In becoming leaders in finance, 
in the professions, in manufacturing and in farming they be- 
came their own capitalists because thrift was a prominent 
reality and cumulative success was an absolute certainty. 

"The Savings of the Pioneer. The buildings of prosperity 
and success by self reliance and by rigid economy of the pio- 
neer are among the most extraordinary facts in the history of 
the state of Iowa and the benefits possessed by the people of 
today in great measure should be credited to the training in 
thrift that they gave their children. There were no expen- 
ditures in the pioneer family that could be avoided, there 
were no' outlays that were not investments, there were no 
ideals accepted that did not promise independence and future 
strength, there were no standards allowed to prevail that did 
not give assurance of virtue and manliness of life for the mas- 
ses. The prosperity of the present, the promise of the future, 
are due to the cumulations that have come from continuing 
the policies and customs they approved and enforced. The 
fine farms, the cultured homes, the wonderful credit in the 
market, the remarkable advantages of many kinds, the great 
opportunities on every hand, the grand privileges that are 
everywhere in this state are all legacies of that past when 



MAIN DIVISIONS 35 

the pioneers practiced self denial and thrift for the benefit 
of the g'eneration soon to be in control of public and private 
affairs. In making an investigation of present prospects, in 
taking an inventory of the capital of young life now to be 
invested, in considering the possibilities for progress and 
improvement in the immediate future — the future belonging 
to the young people who' graduate from the schools from year 
to year — it is well to be reminded that equivalent success can 
be procured at the same price and in the same way as that 
followed by the Iowa pioneers. It must be recognized, how- 
ever, that it is only the truly fit in physical, intellectual and 
moral qualities that can survive and that it is necessary to 
depend upon personal strength, individual wisdom, one's own 
capital, good fortunes, energies and resources in order to 
make one's name have value and confidence on the market, 
one's reputation have reliability and acceptability in society 
and one's own earnings and services tO' set up business and 
establish success." 



C. Conditions Giving Direction to Industrial Activity 

9. Competition in Industry 
Outline: 

1. Competition — defined and described. 

2. The nature of competition. 

a) Ever-present. 
h) Uncertain. 

c) Creative. 

d) Under certain circumstances, self destructive. 

3. Self-interest, the dominant motive in the competitive 

system. 

4. Influence of competition in industry. 
a) On prices. 

h) On the quality of goods and services. 

c) On personal conduct. 

d) On "human well-being." 

5. Influence of legislation on competition. 

Exercises: 

1. Define competition. Ely, 28; Fetter, i : 73-4 and 2: 
24-28. 

2. Is either one of the two sides of business competition 
which Dr. Ely points out more important than the other ? Is 
the average individual better able to^ take part in the compe- 
titive struggle in one way than the other? Ely, 28. 

3. Is the idea of struggle or "endeavor" suggested in one 
of the definitions cited above antagonistic to the idea 
presented in the following statement or synonymous with 
it ? "Competition, we have now learned, is neither good nor 
evil in itself ; it is a force which has to be studied and con- 
trolled ; it may be compared to a stream whose strength and 



INDUSTRIAL ACTIVITY 37 

direction have to be observed, that embankments may be 
thrown up within which it may do its work harmlessly and 
beneficially." 

4. May competition as a "force" be likened tO' gravity, 
chemical affinity, or electricity? 

5. In what sense is competition "ever-present'' and un- 
certain? Ely, 28-29. 

6. In what sense is competition as a "force" creative in 
its nature? Seligman, 140-1. 

7. Specify the circumstances under which competition 
may be self-destructive. Gide, 138; Ely, 198-200. 

8. In the following selection from Adam Smith's 
JVealth of Nations (Book IV, Ch. 2) point out the motive 
which leads men to engage in private industry and show how 
the activity resulting from this motive benefits society. Why 
would it not be better for the state to specify the kind of 
industry in which each particular man should engage? 

"The produce of industry is what it adds to the subject 
or materials upon which it is employed. In proportion as 
the value of this -produce is great or small, so will likewise be 
the profits of the employer. But it is only for the sake of pro- 
fit that any man employs a capital in the support of industry ; 
and he will always, therefore, endeavor to employ it in, the 
support of that industry of which the produce is likelv to be 
of the greatest value, or to exchange for the greatest quantity 
either of money or of other goods. 

"But the annual revenue of every society is always pre- 
cisely equal to the exchangeable value of the whole annual 
produce of its industry, or rather is precisely the same thing 
with that exchangeable value. As every individual, therefore, 
endeavors as much as he can both to employ his capital in the 
support of domestic industry, and so to direct that industry 
that its produce may be of the greatest value ; every individ- 
ual necessarily labors to render the annual revenue of society 



38 OUTLINES AND EXERCISES IN ECONOMICS 

as great as he can. He generally, indeed, neither intends to 
promote the public interest, nor knows how much he is pro- 
moting it. By preferring the support of domestic to that of 
foreign industry he intends only his own security; and by 
directing that industry in such a manner as its produce may 
be of the greatest value, he intends only his own. gain, and 
he is in this, as in many other cases, led by an invisible hand 
to promote an end which was no part of his intention. Nor is 
it always the worse for the society that it was no part of it. 
By pursuing his own interest he frequently promotes that of 
the society more effectually than when he really intends to 
promote it. I have never known much good done by those 
who affected to trade for the public good. It is an affectation, 
indeed, not very common among merchants, and very few 
words need be employed in dissuading them from it. 

"What is the species of domestic industry which his cap- 
ital can employ, and of which the produce is likely to be of the 
greatest value, every individual, it is evident, can, in his local 
situation, judge much better than any statesman or lawgiver 
can do for him. The statesman, who should attempt to direct 
private people in what manner they ought to employ their 
capitals, would not only load himself with a most unnecessary 
attention, but assume an authority which could safely be 
trusted, not only to no single person, but to no council or sen- 
ate whatever, and which would nowhere be so dangerous 
as in the hands of a man who had folly and presumption 
enough to fancy himself fit to exercise it." 

9. What is the "invisible hand" referred to in the pre- 
ceding exercise? 

10. Is it true that your father was impelled to engage 
in his present occupation by the motive suggested above? 
Will you be guided by the same motive in the selection of 
your occupation? If not, what one will you substitute for 
it and why? 



I 



INDUSTRIAL ACTIVITY 39 

11. Make a list of four things which competition is sup- 
posed to do in our industrial system. To what extent are 
these desirable ends attained? Gide, 134-8. See particularly 
note on p. 135. 

12. Is competition the dominant force in American in- 
dustry ? • Taussig", 1 : 65-66. 

13. Contrast the influence of competition on personal 
conduct as set forth in the following selections. Which view 
do you think is correct ? May there be any middle ground ? 

"Competition, moreover, is the great safeguard of society. 
It evokes in individuals the fundamental char- 
acteristics of energy, thrift, and power; and it harmonizes to 
a large extent the interests of the individual and of society, 
by making the success of the one depend primarily on what 
he can accomplish for the other.""^' 

''The Premium on Dishonesty: Competition and the pro- 
fit system make it almost impossible for men to succeed in 
many lines of business without resorting to deception, unfair 
advantage and adulteration of goods. Profits are gamed by 
reducing the expenses of production and selling at the high- 
est possible price. The sale of cotton and shoddy for wool, 
the addition of glucose to sugar, injurious preservatives in 
foodstuffs, poor building materials sold for good, deodor- 
ized eggs and embalmed beef, bogus mining stocks, ''city 
lots" in a Florida swamp, railway rebates, manipulation of 
legislatures, two hundred per cent on chattel loans, and a 
thousand other nefarious devices have been developed by a 
laissez faire competitive system. When one competitor re- 
sorts to such means the others must follow or go out of busi- 
ness. Restrictive legislation is bitterly fought by personally 
honest men. One method of deception is hardly made illegal 
before another is devised. The spirit of the law is violated 



*Seligman, E. R. A., Principles of Economics, p. 141. Copyright by Longmans, 
Green and Company. (1912.) 



40 OUTLINES AND EXERCISES IN ECONOMICS 

and the letter upheld. Government inspectors must watch 
all forms of manufacture to detect violations of the law, and 
it becomes an advantage to the manufacturer to bribe the 
inspector. Nor must it be forgotten that practically the en- 
tire system of government regulation and inspection with its 
army of employes and expensive departmental machinery is 
a social waste, made necessary by the nature of capitalism. 

"To these evils must be added the danger to health and 
lives of the workers under the profit system. Every safety 
device costs money and the manufacturer not unnaturally 
hesitates to incur the expenditure lest it reduce the margin 
of profit. One manufacturer may even wish to guard his 
machinery, but finds himself unable to do so unless his com- 
petitors do the same, and even he will fight a law compelling 
him to protect the lives of his employes. So it is with sanita- 
tion. Even a private monopoly is more likely to safeguard 
the health of its employes than is the best individual employer 
under competition."* 

14. What is the influence of legislation on competition ? 
Seligman, 147-53; Ely, 29-30; Hamilton, 154-156. 



*Spargo and Arner, Elements of Socialism. Copyright by The Mac- 
Millan Company. (1912.) 



INDUSTRIAL ACTIVITY 41 

lo. Private PROPEkTY 



Outline: 



1. Private property, defined and described. 

2. Excluding clothing- and other articles of ordinary 

3. Relation to individual well-being. 

a) As a means to economic independence. 

b) As a basis for social standing. 

4. Relation to social well-being. 

a) As a source of happiness and a stimulus to industry. 

b) In cultivating care. 

c) In developing personality. 

d) In developing and satisfying higher social needs. 

e) In serving as a ''cement for society." 

5. Private property — "A seat of social authority." 

6. Public policy regarding proposed changes in property 

rights. 

Exercises : - 

1. Define property. Ely, 21; Fetter, 2:15-19. 

2. Excluding clothing and other articles of ordinary 
household equipment, make a list of five of the most import- 
ant valuable things in your community in which the right of 
private property exists? Would this list be the same for any 
other community in which you have lived. Make a similar 
list of valuable things in your community which are public 
property. 

3. Why do you think the right of the individual to pro- 
perty should involve the idea of protection by the State? 

4. Will the State call out the militia to protect one in the 
possession and enjoyment of his property? Cite particular 
instances, if you know of any. Do you think it would be 
right for the State to use armed force for such a purpose? 

6 



42 OUTLINES AND EXERCISES IN ECONOMICS 

5. Was there any private property in the Garden of 
Eden ? 

6. Trace historically the steps in the development of 
private property as we now have it. What has been the 
determining factor at all times in the extension and develop- 
ment of individual rights to property? Seligman, 125-131. 

7. What is the present nature of property rights? In 
what respects are property rights being modified and limited ? 
Fetter, 2: 20-22; Ely, 22-23. 

8. What is the only basis and justification for modify- 
ing present rights? Fetter, 2: 22-23; Seligman, 134-136. 

9. In the following assignment from Dr. Ely's discus- 
sion of the influence of private property on individual well- 
being point out the economic and social restrictions which 
surround the individual who lacks private property. Ely, 
Property and Contract, i : 307-309. 

10. If private property has sOi close a relation to in- 
dividual comfort and independence as was indicated in the 
preceding exercise, how do you account for the fact so few 
persons possess any property beyond immediate needs? 
What are the conditions upon which ''financial indepen- 
dence" may be attained? A basis for the discussion of the 
foregoing questions is found in the following selection from 
a recent address by President H. H. Seerley, of the Iowa 
State Teachers' College. 

"The United States is a very prosperous nation as a com- 
bination of citizens when the total invoice has been taken of 
real estate, bank balances, resources, merchandising and 
manufacturing, and yet as individuals in a mass but few 
Americans are capable of being classified among the truly 
prosperous. The people of the United States earn lavishly, 
but unfortunately they spend their incomes so extravagantly 
and so completely that they prove to the thoughtful that 
they know nothing at all of either thrift or economy. Such 
shortcomings among the American people are not chargeable 
to any one vocation, profession or class, as the general rule 



INDUSTRIAL ACTIVITY 43 

shows that it is supposed to be more creditable to spend than 
to save, more honorable tO' gO' on credit for present day 
maintenance than to have a surplus beyond needs and im- 
mediate expectations, more sensible to buy when it can be 
afforded, even if such purchase infringes on capital, rather 
than to become capitalists and investors as independent men 
and women of affairs in the community and in the state. 

"Business Credit. So much so is this habit of spending 
income true as a practice that were the wheels of industry to 
">top thirty days, the vast majority of our people would be 
in the direst distress unless hope of an early revival made 
it possible yet to mortgage the future. The method of do- 
ing business on thirty days credit may be convenient as a 
system, but it destroys many a family's independence as 
financiers because the habit of paying obligations when 
wag'es or salaries are received is becoming so universal 
as actually to prevent the attainment of either a com- 
petence or a protective fund for the days of misfortune 
or incapability. 

''In the whole United States not over io8 out of every 
thousand save money and two out of every three who die 
leave no estate whatever. In New York, where statistics 
are the best, one out of every ten is buried in the potter's 
field, 85.3 per cent, leave no estate, 4.3 per cent, leave from 
$300.00 to $1,000.00 and 5.3 per cent, leave from $1,000.00 
to $5,000.00. 

"In the United States there are 1,250,000 wage earners 
who have become dependent upon the state and their sup- 
port is costing the taxpayers $220,000,000 a year. There 
are in this country 3,000,000 widows over 65 years of age, 
of whom 32 per cent of them absolutely lack the bare neses- 
sities of life and 90 per cent, of them lack the common com- 
forts of life. The country at large is supporting 1,000,000, 
delinquents in public institutions and yet the wealth that is 
estimated to exist amounts to more than $150,000,000,000 
in valuation. It ought not tO' be that 10 to 15 million of our 
people in 19 15 are in absolute poverty when such abundant 
prosperity exists and when such marvelous opportunities are 
offered, since it is known that this present untoward con- 
dition is not due to lack of making good incomes or to the 
impossibility to prosper largely and to succeed wonderfully, 
but that it is entirely due to habits of wastefulness, extrav- 



44 OUTLINES AND EXERCISES IN ECONOMICS 

agance and shiftlessness in business and to the lack of com- 
prehending the importance of thrift as a fundamental 
principle of character and conscience in dealing with the 
every-day transactions of life. 

^'Preparation for the Future. The first necessity to suc- 
cess in this world in any worthy field of occupation is busi- 
ness ability and integrity, as without them the best talent 
is lost and the greatest independence of character is sacrified. 
Young men and women who desire competency and effic- 
iency must recognize at the outset that financial independ- 
ence is an essential attribute to any sort of personal pros- 
perity and that such an essential condition does not mean 
after all the acquiring and the possessing of a vast sum of 
money. Financial independence means the establishing of a 
rigid system of prudence, so that the expenditures never 
equal the income and so that the savings of income are 
begun early in life, when actual demands are small and pros- 
perity is a certainty. It is a reckless procedure tO' wait to 
begin to build the financial fortune . until the income gets 
larger and the amounts to be set aside are greater. The 
man or woman who can not save from an income of $300.00 
or $500.00 will not be able to save when the income becomes 
$5,000.00 or $10,000.00, because individual initiative and 
individual demands constantly increase as developments 
come and opportunities enlarge. Opulence is a comparative 
term, a matter of feeling, rather than an absolute term, a 
matter of judgment. To be governed by emotion in con- 
ducting important business enterprises is to surrender 
judgment and foresight where such applications are essential 
factors. Prosperity is also a comparative term, rather than 
an absolute term. Capital as a word is a comparative term 
when applied to business, since he who saves a dollar and 
invests it so as to increase his income has attained prosperity, 
has become a capitalist and is developing a habit that is 
fundamental to success and efficiency. Financial ability 
should not be measured by thousands or by millions, but by 
the possest capability to save money and to invest it wisely 
for more increase of saving. Thrift means mental discip- 
line, self imposed ; it consists of denying the present in order 
to take care of the future ; it compels the exercise of moral 
stamina of an unusual quality because it demands the pos- 
session of the power to refuse to yield to the temptation of 



INDUSTRIAL ACTIVITY 45 

enjoying" recklessness, improvidence and dissipation, the 
special pleasures of the spendthrift. Thrift is the ultimate 
foundation of the efficiency of individual men and women, 
of community and of state prosperity in government, of 
the success and power of organized industry and cumulating 
business of every kind." 

11. Which is the "safer" road to individual fortune? 
Fetter, i : 482-6. 

12. Which is the wiser policy, individually and nation- 
ally, to save or to spend? Discuss this problem from the 
point of view suggested in the following editorial which 
appeared in the Des Moines Register, June 27, 191 7. What 
do you think of the test of personal capacity suggested 
below ? 

Saving and Spending 

''The problem with every individual is how to save 
without stinting himself and his family too much in their 
daily needs, how to accumulate a capital fund, without 
depriving himself of the enjoyments and conveniences of 
life. 

It is easy to go to either extreme, easier to go to the 
extreme of spending than of saving. More than one man 
who in his prime has enjoyed a liberal salary has been 
buried by the county at the last. On the other hand, less 
frequently now than a generation or two ago, men have 
kept the sugar locked up that no personal indulgence might 
interfere with accumulation. 

"To strike a happy medium, to save a working capital, 
for the future, and at the same time bear a full part in the 
activities and enjoyments of the present, is the real test of 
personal capacity. Only the rare man gets the most out 
of the present while making wisest provision for the future. 
The average man either spends everything as he goes, or 
makes a vice of saving. 

"The problem of the individual is the problem of the 
community. Nationally the American people are precisely 
where every individual American finds himself. The na- 
tional problem is how to get a working capital for the devel- 
opment of vast enterorises, without depriving too many 
people of bath tubs. It is tremendously important that we 



46 OUTLINES AND EXERCISES IN ECONOMICS 

have accumulated working capital. It is tremendously im- 
portant that the average family have "the dollar left over" 
of Wendell Phillips, for books, and leisure and entertain- 
ment. 

"We shall never strike an exact balance nationally any 
more than individually. The best we can do is to recognize 
when the tide is setting too strongly towards one extreme 
or the other and try and correct the tendency. This is all 
the harder to do nationally because those who are directly 
interested in accumulated wealth are one class, while those 
who are directly interested in more dollars per week for the 
enjoyment of life are another class. And the problem is 
further complicated because so many who stand for ac- 
cumulated wealth scatter so wastefully, while so many 
who urge more dollars per week get sO' little worth while out 
of the leisure they already enjoy. 

"The matter has been presented acutely in the proposal 
to "conscript wealth" for the war. The advocate of accu- 
mulation at once protests. Conscription of wealth will not 
reach the money the wealthy spend on themselves, it will 
only reach the money ready for investment in new enter- 
prises. Suppose United States Steel is making now $500,- 
000,000 and was making only $75,000,000 three years ago. 
That accumulated earning is merely a new fund for enlarge- 
ment of the steel industry. An enlarged steel industry 
means more avenues of employment, higher wages, more 
comforts in the home. The steel owners cannot spend any 
more money on themselves. All they can do is to use the 
new money to enlarge the field of American activity. 

"Oft the other hand, here is the concrete fact : with all the 
enormous enhancement of wealth in the United States, half 
the families of America are living below the line of comfort 
fixed by students of social economics, and one-third of 
the families of America skirt the hunger line. Although 
in the two years of war, this country has changed its rela- 
tion to the commercial world, and become a creditor nation, 
the day laborer in Des Moines is having as hard a time of it 
to supply his daily table as he ever had ; in fact, many 
believe a harder time. 

"Now it will not do to have too many families go without 
bath tubs to accumulate enormous aggregations of working 



INDUSTRIAL ACTIVITY 47 

capital. Translating this intO' terms of taxation for this war, 
it will not do to distribute too much of the burden in taxes 
on consumption in order to leave intact the working accum- 
ulations of the steel trust. Taxes on consumption are a bur- 
den put upon the shoulders of the masses, and they take in 
too many instances the dollar left over that should go for the 
comforts of life. Suppose it to be true that to tax United 
States Steel $400,000,000 a year during the war would stop 
many enlargements of the steel industry, there is a point at 
which it becomes more important that the consumer should 
have food and comforts in the home than that even the most 
unexampled enlargement of business should be financed 
out of earnings. 

''The Register would not put the emphasis at the wrong 
spot. It is much easier to spend every cent we make as a 
people than it is to accumulate. Moreover, it is easy to^ har- 
bor unwarranted suspicions of those who are managing the 
accumulation. We must have accumulated capital, and we 
must have enlargements and improvements, and we must 
have money for new things. We must have faith in the men 
who are at the head of great enterprises. But in our zeal 
for this side of it, we must not overlook the actual needs of 
the people who,do the work, nor forget that comforts in the 
homes of the masses are in the last analysis the test of our 
civilization. For, however hard we may fight for world 
democracy, we shall never have world democracy excepting 
as the masses of the world are given the ''dollar over" that 
means books and music and travel and recreation." 

13. What are the social purposes which private pro- 
perty serves and how does it accomplish these ends? Ely, 
Property and Contract, 1 1298-304 ; King, Wealth and In- 
come, 54-64. . I 

14. In what sense may private property be the "seat 
of social authority?" Ely, Outlines, 22. 

15. From the following description of property rela- 
tionships in a western mining camp, indicate the group 
which is able to exercise authority over the other and point 



48 OUTLINES AND EXERCISES IN ECONOMICS 

out the source of that abiHty. How would you remedy 
such a situation? 

''Coal mines are not developed like a factory at a con- 
venient distance outside some town or 'camp.' A shaft is 
sunk wherever the coal happens to be. If there is no town 
at hand, and there generally is not, the operator must build 
one before he can get men to come and work in his mine. 

"Having assembled a group of people in a place remote 
from other towns, it becomes necessary to provide them 
with foodstuffs and other essentials. There must be a store, 
and usually there is no one with requisite capital to^ build 
and maintain one but the operating company. There is no 
coal mining state, whether east, west or south, where this 
system of private town ownership, despite occasional ex- 
ceptions, is not the historic and expected condition. 

"This, of course, creates a situation with respect to local 
government and the relationship between landlord and ten- 
ant very different from that obtaining in villages that have 
jgrown up in the ordinary way, with varied interests and 
more than a single property-owner. The coal miner must 
go away from home to get off his employer's property. He 
is on it when asleep in his bed. He is still on it if he stands 
in the street. He does not escape by going to church, and 
in many cases his children are still on company property 
when they are at school. The employing company is fre- 
quently the only taxpayer in the camp, and so exercises a 
greater influence in all phases of local government than 
do the people who make their homes there, as the stock- 
holders and officers do not. 

'Tt must be evident that this gives the employer a de- 
gree of control that he could not possibly exercise if he were 
conducting an enteprise in a manufacturing town. For 
example, the lease under which employes of the Colorado 
Fuel and Iron Company occupy houses belonging to that 
company contains a clause providing that it may be term- 
inated by the company on three days' notice, and the occu- 
pant dispossessed. The same provision or a similar one ap- 
pears in the leases of other companies also. A man cannot 
offend his employer without getting into trouble with his 
landlord at the same time. 



INDUSTRIAL ACTIVITY 49 

"That this is a wholly natural development is clear. The 
companies are not to be blamed for it. On the contrary, 
they would be most severely taken to task if they should fail 
to provide suitable dwellings, and, where necessary, a store. 
It is also' clear, however, that this system of private owner- 
ship of towns gives a power to the coal operators that they 
could not dream of possessing if they were conducting an 
enterprise in an established city." John A. Fitch, Law and 
Order in Colorado. The Survey, 33 :' 245-6. 

16. Private property is sometimes said to be a "bundle 
of rights." Specify the constituent elements in existing 
rights to property and discuss certain modifications of these 
rights that have been proposed as matters of public policy. 
Seligman, 136-38. 



50 OUTLINES AND EXERCISES IN ECONOMICS 

II. Contract 
Outline : 

1. Contract, defined and described. 

2. Relation of the State to^ contract. 

3. Economic significance of contract. 

a) Relation to the accumulation oi wealth. 

b) Relation to the preservation of advantages once 

secured. 

c) The basis of all modern co-operative action. 

4. Freedom of contract. 

a) The meaning of freedom as related to the right to 

contract. 

b) Implications of free contract. 

.r) Voluntary action. 
3;) Equal ability. 

5. Distinction between "labor contracts" and other con- 
tracts. 

Exercises : 

1. What is a contract? In the general sense of the 
term ? In the economic sense ? Ely, Property and Contract, 
2:561-4; also Ely, Outlines, 25. 

2. If one man agrees to injure or destroy another upon 
the payment of a certain sum of money for his act, is such 
an agreement a contract? Why? 

3. ^ If two grocers secretly agree to charge the same 
price for butter, is such an agreement a contract? Why? 

4. Why do you think the enforcement of agreements 
by the State should be essential tO' the idea of contract? 

5. What is the economic significance of contract? Ely, 
Property and Contract, 2 : 576-80 ; Hamilton, 670. 

6. What is "freedom" as related to the right to con- 
tract? Hamilton, 669-70. 



INDUSTRIAL ACTIVITY 51 

. 7. What is the relationship between freedom of contract 
and personal responsibility? Hamilton, 670-73. 

8. Distinguish between "legal" freedom of contract 
and ''economic" freedom to contract. Ely, Outlines, 26-27 ; 
Hamilton, 674-6. 

9. Are legal restrictions upon the right of "free con- 
tract" necessary and desirable as a means of securing eco- 
nomic freedom? If so, why and in what respect? Ely, 
Outlines, 27-28; Property and Contract, 2:674-5. 

10. Would a law establishing a universal eight-hour 
day in factory employments enlarge or restrict the right of 
free contract for employers? For employees? Hamilton, 
678-80. 

11. Does the unrestricted right of free contract al- 
ways result in the largest freedom to the worker? 
Hamilton, 673-4. 

In what respects are "labor contracts" different from 
other contracts? Commons and Andrews, Principles of 
Labor Legislation, 1-2 and 116-7. 

13. In what respect is the "rule of free contract" as 
applied to "labor contracts" sometimes regarded as being 
unjust? Ryan, Distributive Justice, 328-30. 



52 OUTLINES AND EXERCISES IN ECONOMICS 

12. Monopoly 
Outline : 

1. The "idea" of monopoly. 

2. Sources of monopoly. 

a) The law. 

b) Economic conditions. 

3. Kinds of monopoly classified according to the source of 
monopoly power. 

a) Personal. 

b) Legal. 

c) Natural. 

d) Capitalistic. 

4. Relation of monopoly tO' industrial opportunity. 

a) Influence of monopoly not exhausted in price. 

b) Influence of monopoly may extend to the control of 
industrial opportunity. 

5. Methods by which monopoly influences industrial op- 

portunity. 

a) Unfair contracts. 

b) Discriminating prices. 

c) Control of credit. 

Exercises : 

1. Set forth the conditions in society in which monopoly 
may exist and give a good definition of monopoly. Ely, 
189-90; Fetter, i: 76-77. 

2. Show why monopoly does not mean either ''merely 
scarcity" or "superior economic power." Fetter, i '.yyS ; 
Ely, 192-3; Taussig,, 2: 440-44L 

3. Trace the historical development of the idea of 
monopoly so as to contrast the sources from which it may 
arise. Which is the more important source in our day? 
Ely, 190-2. 

4. Mention at least four different kinds of monopoly and 
state the source from which the monopoly arises. What 



INDUSTRIAL ACTIVITY 53 

kinds of monopoly in our day require the most careful public 
attention and consideration. Seager, 213-16; Bullock, 319- 
24; Taussig, 1:107-13. 

5. Why does the modern man object to monopoly? 
Ely, 208. 

6. In the following quotation point out the reasons why 
monopoly is believed to result in inequality of opportunity: 
Do you think this a reasonable view of the situation? 'Tt 
makes little impression on the American public when it 
is attempted to show that the Standard Oil Company has 
lowered prices. The enormous fortunes to which it has 
given rise suggest that the price has been higher than it 
should be, yielding far greater than competitive gains; 
but even if it could be proved that the price had been 
voluntarily lowered, it would not be convincing, because 
we are disturbed by the alleged engrossment of oppor- 
tunities by a few members of the community and not 
open to others. Nor would it satisfy the American public 
to be convinced of the sincerity of the professed benevo- 
lence and of the personal integrity of the leaders of this 
gigantic undertaking. The question is one of the action 
of economic forces ; the leaders are often really coerced 
by these forces; and from one point of view are to be 
looked upon as their victims." Ely, R. and E. Ed. (1908) 
210. 

7. 'Make a list of the diffecent methods by which 
monopoly limits industrial opportunity. Fetter, 2 : 453-4. 

8. Describe some of the methods used by private 
monopoly to crush competition and thereby limit individual 
freedom of action. Can the law prevent "unfair competi- 
tion?" Seager, 451-6; Fetter, Sourcebook in Economics, 
255-65 ; Hamilton 423-4 ; Taussig, 2 : 425-430- 

9. In what respect do you think President Wilson was 



54 OUTLINES AND EXERCISES IN ECONOMICS 

correct or incorrect when on two different occasions, in 
speaking" of the credit situation, he said : 

''But there is no use taking away the conditions of 
monopoly if we do not take away also the power to create 
monopoly; and that is a financial rather than a merely 
circumstantial and economic power. The power to control 
and guide and direct the credits of the country is the power 
to say who shall and who shall not build up the industries 
of the country, in which direction they shall be built, and 
in which direction they shall not be built." 

"The tyrannies of business, big and little, lie within the 
field of credit. We know that. Shall we not act upon the 
knowledge? If a man can not make his assets available at 
pleasure, his assets of capacity and character and resource, 
what satisfaction is it to him to see opportunity beckoning 
to him on every hand, when others have the keys of credit 
in their pockets and treat them as all but their own private 
possession ?" 

What measures have been passed to remedy this situa- 
tion? 



INDUSTRIAL ACTIVITY 55 

13. Public Authority 
Outline : 

1. Meaning of the term. 

2. The State in relation to- industry. 

a) Mercantilism. 

b) Individualism — laissez faire. 

c) Socialism. 

3. Present policy of the State regarding industry. 

a) Regarding the right of the individual to establish 

an industry or engage in business. 
h) Regarding the manner in which industry shall be 
conducted. 

Exercises: 

1. Tell what is meant by the term, public authority, and 
point out some of the ways in which public authority touches 
the industrial activity of individuals. Ely, Outlines (Re- 
vised and Enlarged edition, 1908) 27-28 ; Bogart, Business 
Economics, 243-4. 

2. Tell what is meant by the ''Mercantile System" and 
specify some of the particular ways in which it affected 
private industry. Hami-lton, 33-5; Seager, 11 -12; Ely, 42-3. 

3. Why did mercantilism never become dominant in 
America? Ely, 79-80. 

4. What was the Industrial Revolution? Tell what you 
can of the influence of the Industrial Revolution on the 
Mercantile System of industry. Seager, 12-5 ; Ely, 47-53. 

5. What is the individualistic or laissez faire theory of 
the relation of the State to industry? Ely, 53-4; Seager, 
15-7; Bullock, 516-8; Bogart, 246-7; Fetter, 2:458-9; 
Gide, 18-20. 

6. Write a brief biographical sketch of Adam Smith, 
being careful to state his views regarding the laissez faire 
policy of government and the part that he has had in the 
development of this idea among the people both of Europe 



56 OUTLINES AND EXERCISES IN ECONOMICS 

and of America. Use encyclopaedias, histories, and, if pos- 
sible, a copy of The Wealth of Nations in preparing this 
exercise. 

7. From the following- selections make a statement of 
the advantages claimed for individualism and of the results 
that have been attained during a century of reliance upon 
this principle : 

"Among the advantages of individualism should first be 
mentioned the enormous incentive it furnishes to the ac- 
cumulation of property and so indirectly to the production of 
wealth. Tasks are undertaken in the hope of unusual 
personal advantage which would not be undertaken by a 
man receiving a moderate and fixed reward not influenced 
by special achievements. It is plain that a considerable 
class of persons are thus induced to exert to the utmost 
faculties which would otherwise lie dormant. Further, 
the control of funds of capital by individuals enables them 
to develop ideas of great value to society, but ideas which 
society would not value until so developed. Thus it is 
claimed that individualism not only excites ingenuity but 
gives it scope, and utilizes it in a way that socialism would 
not so obviously do. Finally, quite apart from all material 
advantages there should be noted the intellectual qualities 
which individualism develops, — shrewdness, penetration, 
aggressiveness, and independence. These characterize in 
a high degree the foremost members of an advanced indi- 
vidualistic society."* 

"Through all the first half of the nineteenth century, 
however, individualism was in all directions dominant. Its 
results are well known. The individual, free from legis- 
lative restraints, seeks gain. The producer who can produce 
the most, the best, or the cheapest gains the market. Out of 
competition to do this has sprung the modern mastery of the 
methods of production, division of labor, improved ma- 
chinery, gigantic plants, the factory system, industry on the 
large scale ; if it has produced the capitalist and millionaire, 
it has also both lowered prices and raised wages for the 

♦Palsrave, Dictionary of Political Economy, Vol. 2, 389-90. Cop.yrisht by 
The MacMillan Co., New York. (1912.) 



INDUSTRIAL ACTIVITY 57 

million. In its search for new markets and commercial 
gain it has girded the world with the telegraph, continents 
with railroads, and whitened the sea with sails. It has 
developed more progress in lOO years than all the other 
centuries put together. If its characteristic results have 
been material, it has made education common. It is 
true that large producers and the development of colossal 
transportation corporations have created difficulties for the 
small producer, made the workman largely dependent upon 
the capitalist, and developed the means of production beyond 
the present ability to consume, causing the phenomena of 
the unemployed and the tramp. But it must be remembered, 
in the first place, that these evils are due to the very success 
of individualism, so that we should think twice before we at- 
tempt to cure them by destroying the system which has cre- 
ated this success ; secondly, it is to be doubted if there are 
more unemployed than before, while certainly real wages, 
measured by prices, are materially advanced ; thirdly, in- 
dividuali'Sts believe that the cure lies not in forsaking the 
principle which has been the very life of modern progress, 
but in lifting up every individual to a level of more effective 
competition till every man receives the means of life because 
every man is able to contribute something to the social need. 
What is needed, according to this view, is not less but more 
individualism."''' 

8. In what respects and for what reasons has the laissez 
faire policy broken down in practice ? In what respects has 
it been modified by legislative action in England and in 
America? Ely, 54-6 and 96-7. 

9. In the light of England's experience as briefly set 
forth in the following editorial taken from the Chicago 
Tribune, July 17, 191 5, discuss the problem of individualism 
as a matter of good public policy: 

British Strikes 

*'It does violence to reason to form a wholly censorious 
opinion oi the British workmen who are embarassing their 
country by strikes and insistence upon trade union restric- 
tions in the year of national danger. 

*Bliss. Encyclopaedia of Social Reform. New Edition, 609. Copyright by- 
Funk and Wagnalls, New York. (1908.) 



58 OUTLINES AND EXERCISES IN ECONOMICS 

"The British are fighting" to preserve what is valuable to 
them, their national importance and welfare. They believe 
that to be involved. British workmen have been fighting in 
social wars for years for what was valuable to them, the 
conditions of a decent livelihood, and it has been the shame 
and it is now the peril of Great Britain that only a few of 
her statesmen, the most conspicuous Lloyd-George, have 
realized that communal interests were involved in the in- 
dividual's comforts and necessities. 

"In war circumstances the employing class finds in- 
creased profit and the employed class is called upon for 
increased work. Great Britain has insisted upon an indivi- 
dualism which to the worker meant progress by strife. It 
now asks for a communism which means progress by 
sacrifice and the worker asks for more consideration. If 
the British empire is to be worth working for and fighting 
for, why should it not be worth something to its workers ? 

"The question as the British strikers propound it has the 
ugly aspect of disloyalty, but why should not a state establish 
itself as something worthy of the great sacrifice it asks? If 
Britain is to ask men to work and die for her let her make 
herself worth dyino^ for. The same stipulation soon will 
apply to the United States. 

"There is intelligence in the British labor movement and 
it wants more than sentiment. Men fight for what is dear 
to them. Sometimes the value is sentimental, sometimes 
it is practical. Sentiment for sacrifice in war will not grow 
sturdily in a soil never enriched by a consideration of human 
needs in time of peace. 

"If the British workman be surly and disloyal it is be- 
cause his government did not reveal in times of ease sufficient 
consideration for him to make national emergency a per- 
sonal danger." 

lo. " 'Sink or swim' says the State to the miUions 
struggling for wordly goods. That is the end of the matter 
according to the laissez faire theory. The modern State 
helps men to learn to swim." Make a list of some of the 
things that the modern State is doing to help you "to swim" 
in the economic world. 



INDUSTRIAL ACTIVITY 59 

11. "Industry under the competitive regime is a rough 
game played for high stakes, and if it is to be played fairly, 
there must be intelligent rules of the game and an umpire 
powerful enough to enforce them upon all the contestants 
alike." Who is the ''umpire" and what are the "rules" 
referred to in the preceding statement? What is the re- 
sult of a lack of such rules and their enforcement and what 
is the object sought in establishing and enforcing them. 
Ely, 98 

12. Write a brief biographical sketch of Dr. Richard 
T. Ely being careful to state the particular idea which he 
has contributed most notably to economic thought and prac- 
tice especially in America. New International Encyclo- 
paedia, vol. 7, 670; American Magazine, vol. 79, April No., 
pp. 61-2. 

13. Write a brief statement of Socialism as a theory 
expressing the relationship which should exist between the 
State and industry. In your estimation would socialism 
afford a solution for many of the problems that are clearly 
recognized in the competitive system? Give reasons for 
your answer. Bogart, 248-52; Gide, 26-29; Materials 921- 
927; Hamilton, 761-767. 

14. State, specifically the things which the modern State 
does which pertain directly to industrial activity. Bullock, 
160-163. 

15. From the following selection specify the conditions 
which favor an extension or a limitation of public authority 
in business : 

"The extent to which this country will be turned toward 
socialism will be determined by the business men. We will 
emerge a highly socialistic state — if co-operation, good 
sense, and temperance do not achieve our ends. If business 
seeks all the advantages of its opportunity and charges what 
the traffic will bear; if it is intemperate and goes upon a 
debauch of profits, the people in self protection will follow 



60 OUTLINES AND EXERCISES IN ECONOMICS 

the tendency of all governments to make hard and fast 
rules. Business thinking- only of today and of quick money 
will bring- upon itself rigid restriction and government con- 
trol. The people will give their officers plenary power and 
make things mechanical and inflexible. 

"Business can avoid this by taking counsel of itself. It 
can apply common sense conduct, or let initiative and en- 
terprise go by the board. So I say, moderation, co-opera- 
tion, consideration — above all, common sense. These are 
the words for business today." — Franklin K. Lane, Secretary 
of the Interior, in the Chicago Herald, June 13, 1017 



D. The Factors of Production. 

Production is the process by which goods and services 
are rendered more useful to man. This process involves a 
combining of three elements, land, labor, and capital, usually 
called ''factors of production," each of which is absolutely 
indispensable to the combination. A clear comprehension 
of the process of production, therefore, necessitates a study 
of these factors, first, separately, and second, in combina- 
tion ; and finally, of the business units which make the com- 
bination. 

14. Land. 

Outline : 

1. Land, defined and distinguished from the other factors. 

2. Services in production. 

a) Furnishes standing room. , 

b) Furnishes the materials and forces of nature. 

3. Conditions afifecting the productiveness of particular 
pieces of land. 

a) Extent of space. 

b) Abundance and quality of the materials and forces 
provided. 

c) Conformation. 

d) Climate. 

e) Location. 

f) Intelligence and ingenuity of man. 

Exercises: 

1. Define and describe land as a factor in production. 
Seager, 123-4; Gide, 65. . 

2. Distinguish land from the other factors in produc- 
tion, particularly from capital. Seligman, 300-303 ; Ely, 

S07-8. 

61 



62 OUTLINES AND EXERCISES IN ECONOMICS 

3. Mention the different services which land renders 
in production and tell what is meant by each. See the out- 
line above; also Ely, 408-10; Gide 66-77. 

4. What portion of the total land area on the earth's 
surface is, potentially, agricultural land ? What part of the 
land area of the United States is now occupied or reserved, is 
improved farm land, or unimproved farm land ? Nourse, 
129; Ely, 119-20; Gillette, Constructive Rural Sociology, Re- 
vised Edition, 1915, 204-9. 

5. What is the relation of land area to the possibility of 
supporting a large population? Gillette, 209-11. 

6. Point out specifically some of the influences of wind 
and temperature on the productiveness of land in certain 
regions of the United States and Canada. Nourse, 130-7. 

7. What are the principal chemical elements that make 
up the "fertility" of the soil? Which are the most im- 
portant? How may the supplies of the chemicals in the 
soil be exhausted and how may they be replaced when thus 
exhausted? Nourse, 158-61 and 172-4; Seligman, 303-6, 

8 How do topographical features of land affect its pro- 
ductivity? Nourse, 174- 181. 

9 What is the effect of location on the productivity of 
land? Seligman, 306-9. 

10. What is the limit to the productivity of land? Ma- 
terials, 58-61. 



THE FACTORS OF PRODUCTION 63 

15. Labor 

Outline: 

1. Definition. 

2. Nature of economic effort. 

a) Pleasurable and enticing. 

b) Irksome and discouraging. 

3. Motives to economic activity. 

4. Importance of labor as a factor in production. 

5. Function of labor in production. 

a) To furnish part of the physical force needed to en- 
hance the usefulness of the materials supplied by 
nature. 

b) To furnish the mental power needed to direct the 
use of materials and forces of nature in the most 
advantageous ways and for the most beneficial pur- 
poses. 

6. The efficiency of labor. 

a) Of the laborers themselves. 

b) Of the organization of the labor force. 

7. The number of laborers. 

a) The Malthusian law of population. 

b) The standard of living. 

Exercises: 

1. From the group of definitions of "labor" included in 
the following citation, select the one which you think best 
expresses your idea of labor. Compare this one with the 
one given in your text book. Which is the better and why? 
Materials, 105-6. 

2. Specify the conditions under which labor is pleasur- 
able ; also those under which it is irksome. Which condi- 
tions are the more prevalent for the mass of men and why ? 
Is labor more pleasurable or more irksome now than form- 
erly for the average worker and why? Taussig, i :8-i2. 



64 OUTLINES AND EXERCISES IN ECONOMICS 

3. How may the irksomeness of labor be lessened ? Is it 
desirable that it should be lessened? Taussig-, i: 12-14. 

4. What are the motives to economic activity ? Which 
one is the dominant motive for the mass of workers at the 
present time ? Which one is impelling you in your economic 
activities? Do you think society should endeavor to sub- 
stitute some other motive for the one that is now dominant? 
Seag-er, pp. 50-52; Taussig, 1:14; Fetter, 1:171-9; Ely, 

103-5- 

5. Is labor economically more important than either 
of the other factors of production? Bullock, 123. 

6. The functions which labor performs in industry are 
specified in the outline above. Show by illustration that 
these statements are correct. Materials, 106-8. 

7. When is labor productive ; when, parasitic ? Gide, 
98-103; Taussig-, i: 15-25. Sehgman, 277-9. 

8. Can the law distinguish between productive and 
parasitic labor ? Taussig, i : 25-29. 

9. What are the personal characteristics which in- 
fluence the individual efficiency of the laborer? What 
economic and social conditions also affect his efficiency? 
Is either one of these conditions of efficiency more important 
than the other? Bullock, 123-4; Seager, 135-40; Fetter, 
1 : 179-92. 

10. What has the efficiency of the laborer to do with 
the cost of production in industry? Hamilton, 336-7. 

11. Describe the plans by which the principle of "divi- 
sion of labor" is employed in industry and tell something of 
its nature and advantages. Taussig, i : 30-38 ; Seligman, 
290-4; Seager, 153-7. 

12. Give some statistical illustrations of the benefits of 
division of labor. Seager, 157-8. 

13. What is the influence of division of labor on the 
employment of skilled workmen? Materials, 199. 



THE FACTORS OF PRODUCTION 65 

14. What are the Hmitations to the division of labor 
as set forth by John Stuart Mill? Materials, 181-2. 

15. Discuss the topic, "division of labor" from the 
standpoint of its effects upon the worker. Ely, 127-8; 
Seligman, 294-6; Gide, 154-7. 

16. Discuss the advantages and disadvantages of "divi- 
sion of labor" especially from the standpoint of the public 
and of the worker when carried on under the conditions 
described in the following selection : 

Division of Labor in the Ford Automobile Factory. 

"They don't just produce automobiles at Ford's," a man 
in another Detroit automobile factory remarked, "they spew 
them out." Fifteen thousand men work in gangs on the 
track system. Each gang, and each man in each gang, has 
just one small thing to do — and to do over and over again. 
It's push and hustle and go. The man behind may shove 
his work along to you at any moment — you must not hold 
him back ; at any moment the man in front may be ready for 
another piece to work on — he must not be kept waiting. 

Up one line and down another goes a continual stream of 
motor parts in process of assembling. One man fits the parts 
together so that the bolt holes come right. The next man 
slips the bolts into place. The next man has a pan of nuts 
before him and all day long he scoops them up and with his 
fingers starts them on the thread of the bolts. The next man 
has a wrench and he gives them the final twist that makes 
them tight. 

Over in another part of the great factory there are four 
or five parallel tracks. On every track are a dozen automo- 
biles in all stages of being put together. Each is slowly 
moving from one end to the other, and — like a snowball 
rolling down hill — ^gathering itself together as it travels, until 
with a snort and a whir it dashes out at the door on its own 
power. 

The last of these tracks is formed by moving belts. 
Without a stop from start to finish the machine mo\es stead- 
ily forward on the belt, and, either sitting on different parts 
of it or walking alongside for a moment, each man adds the 



66 OUTLINES AND EXERCISES IN ECONOMICS 

bolt, or g-ives a turn to the screw for which he is responsible. 
One fellow has to lie on his back underneath and hammer 
away at something. H|e has a little platform on wheels to 
support him and with a bent rod he "hitches on" the front 
axle. ''Bing" — "bang", instantly he lets go and drops back 
to hitch on the next machine. 

Piled up along the way are the different parts, each to be 
added as the growing machine passes by. Each man does 
his part, and gives it a shove. First, to a mere skeleton of 
a frame, two men attach the rear axle. They fasten it in 
haste and give it a push — someone else will tighten the bolts. 
Three men seize it and in a moment the front axle is in 
place and the four wheels put on. It's easier to move now ; 
a touch sends it on to another gang of three, who put on the 
truss rods and tighten things up all around. 

Another shove, and it goes to where a motor is dangling 
from chains, directly over the track. A word from someone 
and down comes the motor to its place, the bolts go in and 
on goes the machine. Then comes the steering gear, and 
the control levers — on again, and from overhead a hose is 
pulled down and a gallon of gasoline squirted into the tank. 
One more shove and the rear wheels drop into a slot where 
there are rapidly revolving pulleys. The wheels begin to 
whirl — the motor starts — a man seats himself on the tank, 
grasps the wheel and cuts loose, and with a snort and a 
cough, out the door they go. What was, ten minutes ago, 
a pile of rods and gears and lifeless steel is now thrilling with 
power. A car came through that door every 24 seconds 
Saturday morning, January 24. One hundred and fifty cars 
were turned out between 8 and 9 o'clock that morning, 140 
in the next hour, 163 in the next, and 152 between 11 and 
12 — 605 completed automobiles in four hours. John A. Fitch, 
Ford of Detroit. Survey, 31 ; 545-6. 

17. What are the elements which go to make up the 
supply of labor? Bullock, 124-5; Ely, 432-4. 

18. State the Malthusian theory of population. Ma- 
terials, 109-11; Seager, 302-4. 

19. Discuss this theory in the light of nineteenth century 
experience. Ely, 434-7; Seager, 304-13; Seligman, 60-65; 
Gide, 695-700. 



THE FACTORS OF PRODUCTION 67 

20. Write a brief biographical sketch of Robert Malthus. 
What was his object in writing his Essay on Population f 

21. Contrast the natural increase in the population in 
America during the colonial times with that of the latter part 
of the nineteenth century. Bogart and Thompson, 109-10; 
Nourse, 218-19. 

22. Tell what is meant by a ''standard of living." What 
is the influence of a high standard of living on the growth 
of population? What is the tendency of the present time 
in this respect? Bullock, 126-9; Seager, 256-8, 307 and 309; 
Bogart and Thompson, 827-9; Hamilton, 550-52. 

23. What may be regarded as a minimum standard of 
living at the present time? Would you regard these pro- 
visions as being sufficient or do- the conditions revealed by 
investigators seem to warrant social and governmental inter- 
ference and adjustment? Bogart and Thompson, 829-38; 
Hamilton, 552-8. 



68 OUTLINES AND EXERCISES IN ECONOMICS 

1 6. Capital 
Outline: 

1. Capital, defined, described and distinguished from the 
other factors of production. 

2. Function in production. 

3. Results of its use. 

a) Increased product. 

b) Improved quality. 

c) Utilities that could not otherwise be obtained. 

4. Effect on the employment of labor. 

5. Methods of capital formation. 

6. Social influences affecting the growth of capital. 

a) War. 

b) Luxurious consumption. 

c) Insurance, savings banks and other savings institu- 
tions. 

7. "Capitalistic production." 

Exercises : 

1. Define capital and distinguish it from the other fac- 
tors of production, particularly land. Ely, 110,121-2, and 
507-8; Gide, 65; Seager, 148-50; Bullock, 132-8; Taussig, 
I : 83-5 ; for a somewhat different view, see Fetter, i : 266- 
7; Seligman, 16-8. 

2. As clearly as you can, state the two concepts of 
capital. Which one seems to you to be the more satisfactory 
one for use in this course ? Why ? Gide, 1 13-6. 

3. What is the function of capital in production ? Give 
three concrete illustrations of the way in which it performs 
this function. Materials, 57-8; Seligman, 316-18. 

4. Contrast the results obtained from the use of machin- 
ery and of hand labor in the making of pins and of certain 
articles of wearing apparel. Materials, 158-60; Seligman, 

294-5- 



THE FACTORS OF PRODUCTION 



69 



5. What has been the influence of the use of machinery 
on the cost of production in agriculture? Materials, 170. 

6. Give three concrete illustrations of each of the results 
of the use of capital as set forth in the outline above. 

7. What is the effect of the use of machinery on the 
employment of labor? Bogart, 51-2 and 149-56; Materials, 
693-4; Gide, 85-90; Fetter, 1:458-467. 

8. What are the requisites of capital formation? Bul- 
lock, 138-41 ; Ely, 122-3; Gide, 124-6; Seager, 316-9; Taus- 
sig, I : 7^-^3' 

9. What is the influence of war on the supply of capital 
in a country ? Did the proceeds of the "Liberty Loan" in 
the summer of 19 17 increase or deplete the capital supply 
of the United States? Materials, 179. 

10. What has been the influence of the European war 
on the use that is being made of the capital fund in England? 
The answer to the foregoing question is indicated in a large 
measure by the following table reprinted from the weekly 
Barometer letter of the Babson Statistical Organization, 
August 7, 19^17. 

New Securities Issued During First Half of Each 

Year 



Industrial 
Railroad 
and Misc. 

I917 10,900,980 

I916 25,932,960 

1915 62,698,860 

I914 468,222,120 

I913 405,348,300 
*It is impossible 
classes of industrials 
ment. 



Approx. 

Yield 

New Ind. 

Issues 



Open 
Market 
Rate for 
Bank 
Loans 
3 mos. 
Bills 



4^% 
4M% 
23^% 



Government Total 

5,078,384,100 $5,089,289,940 750%* 

1,369,936,800 1,395,869,760 7.00%-^ 

283,704,000 346,402,860 6.75% 

272,189,160 740,416,140 5-95% 
179,591,580 584,944,740 5-50% 

to determine a representative average yield for all 
because so few issues are permitted by the govern- 



2y2 



. % 



II. Point out the effects of luxurious consumption on 
the supply of capital. Ely, 143-4 ; Seager, 80-3. 



70 OUTLINES AND EXERCISES IN ECONOMICS 

12. Name the different agencies or institutions which 
promote individual saving, briefly describe each, make a 
statement showing the relative importance of each. Fetter, 
2:146-62 and 178-9; Gide, 741-9. 

13. What is "Capitalistic production" and what are 
its advantages and disadvantages? Seager, 140- 1 ; Bogart, 
47-8. 



THE FACTORS OF PRODUCTION 71 

17. Organization of the Factors of Production 
Preliminary statement: 

In preceeding lessons the idea has been developed that 
production will not take place unless there is a combination 
of the three factors that have been previously described. 
Just as the housewife, in order to bake good biscuit, must 
bring the ingredients together in exactly the right propor- 
tion, so the producer in general, must bring the three factors 
of production together in the right proportion in order to 
achieve the best possible results from his industry. The 
attainment of this "right proportion" is, in fact, one of the 
greatest problems in all industry. 

A careful s.tudy of this problem involves a consideration, 
first, of the agency by which the proportion is made ; second, 
of the law which expresses the results obtained from different 
combinations ; and finally, of the conditions which determine 
the size of the- combination which gives the best results. 

Outline: 

1. The entrepreneur. 

a) The term defined. 

b) Services rendered in production. 

c) Characteristics of a good entrepreneur. 

2. The law of diminishing returns. 

a) In agriculture. 

b) In manufactures and other industries. 

c) Influences which tend to counteract this law. 

d) Possibilities of attainment in progressive countries. 

3. Large and small scale production. 

a) Distinction between the foregoing. 

b) Causes of large scale production. 

c) Advantages and disadvantages of large scale pro- 
duction. 

d) Limitations to large scale production. 



72 OUTLINES AND EXERCISES IN ECONOMICS 

e) Consideration of medium- and small-scale production. 
4. Some conditions affecting the organization of production, 
a) Nature of the industry. 
h) Character of the people. 
c) Character and attitude of the government. 

i 

Exercises: 

1. Explain the term, ''entrepreneur." Give a brief ac- 
count of the characteristics of an entrepreneur and of his 
services in production. What is the special service which 
he renders? Seager, 159-60; Bullock, 153-4; Seligman, 
297. 

2. What is the position of the "entrepreneur" in the 
economic mechanism? Gide, 127-8. 

3. Give a brief account of the function of the "entrepre- 
neur" and of the activities in which he is engaged. Point 
out particularly two difficult factors in his problem of man- 
agement. Nourse, 314-9; Materials, 204-6. 

4. State and explain the law of diminishing returns. 
Seager, 129-30; Bullock, 170-3. 

5. Assuming that each additional expenditure of labor 
and capital in growing corn on an acre of land would cost 
$2.00 and yield returns as indicated below, find the point of 
diminishing returns: 

$2 15 bushels 

4 32 " 

6 54 " 

8 75 " 

10 90 " 

12 ... 104 " 

6. To what extent do we find the law of diminishing 
returns in manufacturing as compared with agriculture? 
Taussig, 1 : 186-8; Bullock, 173-76. 



THE FACTORS OF PRODUCTION 7Z 

7. What are the factors in modern civiHzation which 
tend to counteract the influence of the law of diminishing 
returns? Materials, 74-77. 

8. Are the results of the operation of the law of dimin- 
ishing returns very noticeable in progressive countries at the 
present time ? Do the facts set forth detract from the correct- 
ness of the principle or from its importance in particular 
undertakings? Seager, 130-1 ; Bullock, 176. 

9. What are the advantages and the disadvantages of 
large scale production ; what also are the causes for this 
type of development in industry and the limitations to it? 
Bullock, 176-84; Seager, 165-8; Taussig, 1:52-6; Carver 
Principles of Rural Economics, 242-8. 

10. Point out the advantages and disadvantages of me- 
dium and small scale production as applied to agriculture. 
Carver, Principles of Rural Economics, 239-42 and 248-55. 

11. Specify the way in which each of the conditions 
mentioned in the outline above affects the organization of 
industry. 



10 



E. Business Organization 

One writer in Economics defines "business" as ''activity 
entered into, not primarily for its own sake, but for the sake 
of some indirect return." Another writer says that business 
means profit-seeking". The term is not synonymous with pro- 
duction and inchides a considerable number of activities which 
do not result in an increase of those goods and services which 
satisfy human wants. Business is frequently acquisitive in 
its nature rather than productive. Nevertheless, ability to 
acquire in most instances is dependent upon ability to 
produce. Thus it is that most of the productive processes 
and enterprises of society are said to be ''business under- 
takings" and a man who engages in the process of pro- 
duction, especially if he is in any way responsible for the 
organization and management of the undertaking, is said 
to be "a business man." 

Success in business in modern times is dependent upon 
man's ability to associate himself with other men in such 
a way as to give control of the required amounts of land, 
labor, and capital tO' carry on the enterprise. The associa- 
tions built up for this purpose take a variety of forms 
dependent upon the size and the nature of the undertaking. 
Most of these forms, however, may be satisfactorily studied 
under three general headings : viz. ( i )The Individual in Busi- 
ness Organization, which includes also the partnership and 
the joint-stock company. The characteristic feature of this 
type of organization is individual responsibility for the satis- 
factory conduct of the enterprise. (2) The Corporation, 
which includes also the Trust and Co-operative Societies, 
the characteristic feature of all of which is the loss of in- 
dividual identity and the legal responsibility of the artificial 
unit. (3) State Enterprise, which is distinguished from 
other business units not only by the form of its organization 

74 



BUSINESS ORGANIZATION 75 

but also by its purpose to serve the public welfare rather than 
that of a particular group. 

The next step, therefore, in an attempt to understand 
and appreciate modern industry involves a careful study of 
the different units of business organization. 



1^ OUTLINES AND EXERCISES IN ECONOMICS 

i8. The Individual in Business Organization 
Outline: 

1. Individual proprietorship. 
a) Meaning of the term. 
h) Advantages. 

f) Disadvatitages. 

d) Extent to which this type prevails in American in- 
dustry. 

2. Partnership. 

a) Nature of partnership. 
&) Reasons for organization. 

c) Conditions of success. 

d) Relative extent of its use in the United States. 

3. Joint-stock companies. 

a) Distinguishing features. 
&) Relative importance. 

Exercises: 

1. Specify the circumstances under which a man may be 
said to be an "individual proprietor." Is a tenant farmer 
an "individual proprietor"? Is a manufacturer or a, merch- 
ant who leases his land, borrows his capital, and hires his 
labor an "individual proprietor" ? If so, why ? 

2. Point out the advantages of individual proprietorship. 
Robinson, Organizing a Business, 29-31 ; Seager, 160. 

3. What are the disadvantages of this type of organiza- 
tion? Robinson, 31-2 ; Ely, 215. 

4. What are the industries in which this type of organiza- 
tion is suitable and to what extent does it prevail in them? 
Fetter, i : 322 ; Robinson, 66-y. 

5. Point out three essential features of partnership. 
Robinson, 34-5; Ely, 215; Haney, Business Organization, 
49-52. 



BUSINESS ORGANIZATION 11 

6. What are the principal terms specified in a partner- 
ship agreement? Materals, 233-4; Robinson, 36-7. 

7. Why are partnerships organized in preference to in- 
dividual proprietorships? Seager, 160-1 ; Haney, 52-8. 

8. Is partnership a socially desirable form of business 
organization? If so, why? In what respects might social 
action improve this form ? Haney, 61-2. 

9. In what respects does a joint-stock company differ 
from a partnership, also from a corporation ? Haney, 63-4 ; 
Robinson, 44-5 ; Ely, 216, note. 

10. What are the advantages and disadvantages of this 
form of organization? Haney, 75-7. 

11. In what respects is the joint-stock principle socially 
important and to what extent and in what respects should 
its further development be encouraged? Haney, 77-80. 



78 OUTLINES AND EXERCISES IN ECONOMICS 

19. The Corporation 
Outline: 

1. The idea of ''legal entity," artificial person. 

2. Plan of organization. 

3. Corporate stocks and bonds. 

4. Capital and capitalization. 

5. Characteristics. 

a) Continuity of existence. 

b) Flexibility of membership. 

c) Representative management. 

d) Limited liability. 

6. Advantages. 

a) Ability to accumulate large funds of capital for a 
particular undertaking. 

b) Ability to secure and retain the highest order of 
personal ability in the management of an undertaking. 

7. Consequences of the growth of corporations in the 
United States, in regard to 

a) Concentration in the control of business. 

b) Ethical discharge of personal responsibility in man- 
agement. 

c) Effect on individual opportunity and efficiency. 

d) Effect on private property. 

Exercises: 

1. Define the term, "corporation" and distinguish it 
from the other forms of business organization. Ely, 216-19 ; 
Taussig, 1 : 86-9 ; Haney, 81-95 ; Robinson, 47-50. 

2. Give a brief historical account of the development of 
the corporation as a unit of business organization and of the 
extent of its importance in the business activities of the 
United States at the present time. Hjaney, 100-108. 

3. Compare the number of business corporations in the 
United States in 1800 and the purposes for which they were 
organized with the number and purposes of such organiza- 



BUSINESS ORGANIZATION 79 

tions at the present time. In what industries and in what 
respects has the corporation become the dominant type of 
organization? Materials, 238; Haney, 107-8; Robinson, 

65-67. _ . ^ 

4. Briefly describe the plan by which corporations are 
organized. Robinson, 68-75. 

5. . Distinguish between the usual kinds of stocks and 
bonds which corporations issue and state what interests in 
the business are represented by a stockholder as compared 
with a bond holder. Ely, 220-221 ; Robinson, 75-86. 

6. Distinguish between "capital" and "capitalization." 
What is meant by "overcapitalization" or "stock- watering" ? 
What are the evils of over-capitalization? Discuss the pro- 
posed remedies therefor. Ely, 219-20 and 221-226; Seager, 

457-8. 

7. If you were to organize a corporation for the pur- 
pose of engaging in a manufacturing business, or a street 
railway business, which would cost $1,000,000 to establish 
as a going concern, what basis would you adopt for deter- 
mining the proper capitalization of your enterprise ? Would 
the basis be different in one case than in the other? Ma- 
terials, 252-6. 

8. Tell what is meant by each of the characteristics of 
a corporation as set forth in the outline above and show 
what advantages accrue to a corporation bv virtue of the 
fact that it possesses these characteristics; show also the 
evils which are credited to corporate management and con- 
duct of business because of these characteristics. Taussig, 
1 : 89-95 ; Haney, 108- 116. 

9. What has been the effect of increased use of the 
corporate method of business organization on concentration 
in the control of business? Ely, 87; Seager, 163-5 5 Hamil- 
ton, 186-7; Taussig, i: 95-6. 

10. What can you say of the ethical way in which 
personal responsibility has been discharged in the manage- 



'80 OUTLINES AND EXERCISES IN ECONOMICS 

merit of corporations? Seager, 161-3 ; or Hamilton, 186-9; 
Ely, 228-9. 

11. "It is no longer possible, it is claimed, for the man 
of small means, even with good talents, to engage in busi- 
ness for himself ; he must accept some subordinate position 
in a corporation where his individuality is checked and his 
power of initiative does not find free play." Is this true? 
Hamilton, 189-91 ; Bogart, 76. 

12. Describe the influence of the development of cor- 
porations in industry upon private property. Ely, 229; 
Taussig, 1 : 96. 



BUSINESS ORGANIZATION 81 

20. The Trust 
Outline: 

1. Meanino- of the term, ''Trust." 

a) A form of business organization. 

b) Distinguished from monopoly. 

2. Development and present status. 

a) Motives for organization. 

b) Business and industrial conditions favoring their 
growth. • 

c) Forms of organization. 

d) Financial achievements. 

3. Economies gained. 

a) From large-scale production and management. 

b) From superior methods in marketing. 

c) From better adjustment of production to consump- 
tion. 

4. Illegitimate practices. 

a) In transporting their commodities. 

b) In discriminating prices to customers. 

c) In unfair treatment of their competitors. 

5. The trust as a problem. 

a) In business organization. 

b) In monopoly. 

c) In public control of business. 

Exercises: 

1. Look up in two or three different places a definition 
of the term, ''trust," and compare them. Which one do you 
think is the more nearly correct and why? Distinguish a 
trust from a monopoly. 

2. What are the motives that have led to the formation 
of trusts, particularly in the United States? Seager, 442-3; 
Fetter, 2:436-440; Hamilton, 408-9. 

3. State briefly the business and industrial conditions in 
the United States which have favored the growth of trusts. 

11 



82 OUTLINES AND EXERCISES IN ECONOMICS 

Seager, 445-7; Bogart and Thompson, 771-2; Haney, 134-9; 
World's Work, 22 : 14465-9. 

4. Briefly describe each of the forms of trust organiza- 
tion that have been practised in the United States. Seager, 
443-4; Materials, 299-304; Taussig, 2:420-4. 

5. Describe the formation of the United States Steel 
Corporation as an illustration of a holding company. Note 
particularly the conditions which brought about its organiza- 
tion, its capitalization, its profits, its position in the industry, 
and the manner in which it holds its constituent subsidiary 
properties. Materials, 313-8 and 323-7. 

6. What is the relation between the investment of 
money in the stock of a holding company and the amount 
of control which such an investment gives over industrial 
processes? Materials, 239-41 ; Haney, 221-3. 

7. Describe the growth of the 'Towder Trust" as an 
illustration of a merger. Haney, 244-6. 

8. From the standpoint of public policy, contrast the 
merger with the holding company as forms of business or- 
ganization. Haney, 251-3. 

9. To what extent have trusts been organized in this 
country and to what extent have they been financially suc- 
cessful? Fetter, 2:434-6; Seager, 447-8; Seligman, 340-4. 

10. Point out the advantages gained from the large- 
scale production and management made possible by the 
trust form of business organization. Seager. 448-50 ; Taus- 
sig, 2 : 424-5 ; see also again, i : 60-65. 

11. Give a concrete illustration of the efficiency of the 
trust in the field of production as shown by the experi- 
ence of the International Harvester Company in the pro- 
duction of grain binders. Materials, 327. 

12. In what respects and to what extent do trusts 
market their products more economically than smaller in- 
dependent concerns ? Seager, 450 ; Van Hise, Concentration 
and Control, 14. 



BUSINESS ORGANIZATION 83 

13. In what way does a trust bring about a better ad- 
justment of "production to demand"? Seager, 450-1 ; Ham- 
ilton, 405-7 ; Taussig, 2 : 433-4- 

14. In what respects may the advantages claimed for 
the trusts be regarded as real, or as artificial? Bogart and 
Thompson, 772-4; Hamilton, 403-5 and 415-8; Fetter, 
2:452; Taussig, 2:430-3. 

15. Describe some of the ''unfair" and ''ilHgitimate" 
practices that have been indulged in by some of the large 
trusts in the United States. Can the law prevent "unfair" 
competition? Seager, 451-6; Hamilton, 423-4; Fetter, 
Source-hook, 255-65 ; Taussig, 2 :425-30. 

16. What is the size of business unit which results in 
most efficient production ? Does the law prevent the organ- 
ization of a trust and prohibit its activity in this country if 
the combination or consolidation is not guilty of some foul 
practices in order to throttle its competitors? 

17. Is the size of a business or the form of its organiza- 
tion prima facie evidence that such a business is being con- 
ducted contrary to law? What do you consider the vital 
question in regard to the legality of the business of a trust ? 

18. What are some of the principles which underlay the 
regulation of trusts by law ? Materials, 333-7. 

19. What is the present policy of the government re- 
garding the trust question ? What are the provisions of the 
federal acts which give expression to this policy? Ely, 
235-46; Fetter, 2:454-7. 

20. What is the significance of the following statement 
taken from President Wilson's trust message delivered to 
Congress, January 30, 1914: 

"Every act of business is done at the command or upon 
the initiative of some ascertainable person or group of per- 
sons. These should be held individually responsible and 
punishment should fall upon them, not upon the business 



84 OUTLINES AND EXERCISES IN ECONOMICS 

organization of which they make illegal use. It should be 
one of the main objects of our legislation to divest such 
persons of their corporate cloak and deal with them as those 
who do not represent their corporations, but merely by 
deliberate intention break the law." 

What has been done to remedy this situation? 



BUSINESS ORGANIZATION 85 

21. Co-operation 

Outline: 

1. Distinguishing characteristics, as a unit of business 

organization. 

a) Membership based on ability and willingness to 
patronize the business rather than stock owner- 
ship. 

h) Distribution of earnings on the basis of patronage. 

c) Representation in management based on the idea of 
"one man, one vote." 

2. Plan of organization. 

3. Producers' co-operation. 
a) Purposes. 

h) Reasons for its limited success. 

4. Co-operation in buying and in marketing. 
a) Economic features of these activities. 

h) Extent and results of their undertakings. 

5. Co-operative stores. 

a) Experience in Europe and in the United States. 
h) Reasons for their failure in the United States. 

6. The future oi co-operation. 

Exercises: 

1. For descriptions and discussions of plans of organi- 
zation, see Hibbard, Agrictdtural Co-operation, Wisconsin 
Agricultural Experiment Station, Bulletin No. 238; Agri- 
cultural Yearbook, 1914, 190-200; Materials, 361-4 and 904. 

2. Tell what is meant by the term, producers' co-opera- 
tion, point out the purposes for which it exists and the 
obstacles which stand in the way of its success. Fetter, 
2 : 291-4 ; Taussig, 2 : 355-9. 

3. Describe the work of co-operative creameries as an 
illustration of the methods used by farmers in assisting one 
another to market their products. Materials, 905-6. 

4. In like manner describe the marketing of grain and 
live stock in Minnesota by this method. Nourse, 545-8. 



86 OUTLINES AND EXERCISES IN ECONOMICS 

5. Discuss the question of co-operation in the market- 
ing of farm products in regard to both its favorable and 
its unfavorable aspects. Fetter, 2 : 402-4. 

6. Give a brief account of the development of co-opera- 
tive stores in England and in America. Taussig, 2 : 347- 
352; Materials, 907-8. 

7. What are the reasons for the failure of co-operative 
stores in the United States? Materials, 908-10. 

8. On the basis of the information available for this 
purpose, write a statement of what you think of the prob- 
able relative importance of co-operation as a form of busi- 
ness organization in the future? 



BUSINESS ORGANIZATION 87 

22. Governmental Enterprise 
Outline: 

1. Reasons for the Government assuming the functions of 
an entrepreneur. 

a) Need for revenue. 
Z?) Dissatisfaction with private capitalism, 
c) Disposition to increase the ''power and stabihty" of 
the State. 

2. Characteristics of a business suitable for pubhc manage^ 
ment. 

3. Some industries in which public management is most 
common. 

4. Difficulties in the way of public ownership and manage- 
ment. 

5. Methods of management. 

6. Probable future tendencies regarding public ownership 
and management. 

Exercises: 

1. Discuss each of the reasons set forth above for the 
government assuming the functions of an entrepreneur. 
Gide, 204-6. 

2. What are the characteristics of a business which 
may make it susceptible to government ownership and man- 
agement? In what respect may these characteristics not 
always be decisive? Taussig, 2:401-3; Gide, 206-7; Fet- 
ter, 2 : 467-9. 

3. What are the industries in which State ownership 
and management is most common? Gide, 207-8; Taussig, 
2 : 39;. • 

4. Point out the dangers and the difficulties in the way 
of government ownership and management of an indus- 
try. Gide, 209-13; Taussig, 2:407-411. 

5. Describe and discuss the methods by which the State 
may operate an industry. Gide, 213-5. 



88 OUTLINES AND EXERCISES IN ECONOMICS 

6. Point out the tendencies regarding public ownership 
and operation of industry in the United States. Fetter, 
2:464-7. 

7. Write a statement setting forth the direction which 
you think government ownership and operation of industry 
is Hkely to take in the United States and the extent to which 
this movement will be carried. 



PART II. VALUE, PRICE AND EX- 
CHANGE IN INDUSTRIAL 
SOCIETY. 

23. The Market 

Outline: 

1. Modern methods of marketing. 

a) Types of sales. 

b) Salesmen as an agency in marketing. 

c) Advertising as an agency in marketing. 

d) Tendencies regarding "middlemen" in marketing. 

2. Development of the modern market and its methods. 

3. The market, defined and described. 

4. Prices in the market. 

a) "The law of supply and demand," a popular but in- 
adequate explanation of price. 

b) An "accurate statement" of the relation between 
"supply and demand" and prices. 

c) The relation of the market to supply and demand. 

5. Forces affecting prices in the market. 

a) Competition. 

b) Monopoly. 

c) Custom. 

d) Law. 

Exercises: 

1. State and describe three methods by which goods 
are commonly bought and sold. Materials, 340-1. 

2. Name some commodities which are usually obtain- 
able in a modern market and specify the method by which 

89 
12 



90 OUTLINES AND EXERCISES IN ECONOMICS 

they are usually handled. Which of these methods are the 
better ? Give reasons for your answer. Weld, The Market- 
ing of Farm Products, 42-4. 

3. Describe the method by which farm machinery is 
retailed to farmers, (a) by most dealers, (b) by the Inter- 
national Harvester Company. Materials, 356-361. 

4. Describe the method by which live stock is handled 
at the stockyards. Nourse, 519-522. 

5. Under what circumstances may advertising be used 
effectively as an agency in marketing ? Point out the ways 
in which this advertising is carried on and tell something of 
the cost of doing this work. Materials, 348-9 and 438. 

6. In what respects is the employment of salesmen a 
superior method of disposing of goods ? Materials, 347-8. 

7. What are the functions usually performed by the so- 
called "middleman" and what are the tendencies regarding 
the number of ''middlemen" in present methods of market 
distribution? Materials, 342-7. 

8. Why ''Swat the Middleman?" Nourse, 534-5- 

9. If the middlemen are eliminated, who will perform 
the services they now render ? State which method you think 
would be the better and why. Nourse, 535-7. 

10. What arguments are used to justify such special- 
ization in marketing methods as increases the number of 
middlemen? Nourse, 537-540. 

11. Give a brief account of the development of the 
modern market. Weld, Marketing Farm Products, 11 -21. 

12. Without referring to any books, write out as con- 
cise a definition as you can of a market. 

13. Compare your definition with those found in the 
following references: Ely, Outlines, 154; Bullock, 190; 
Seligman, 223. 

14. Is a market significant chiefly as a place for the 
transfer of goods or as a means of ascertaining their prices ? 
Give reasons for your answer, 



VALUE, PRICE AND EXCHANGE 91 

15. If two men meet in the road and trade horses, does 
this transaction constitute a market? 

16. Mention and describe the different kinds of markets 
referred to in the references in Exercise 13. 

17. In what respects is the ''law of supply and demand" 
a "loose" and inadequate explanation of price? Gide, 
225-7; Taussig-, i: 143-4; Materials, 763-4. 

18. Give a more accurate statement of the relation be- 
tween "supply and demand" and price. Ely, Outlines, 156. 

19. In what respects does the organization of the mod- 
ern market affect the relation between supply and demand 
in the determination of price? Nourse, 485-8. 



A. Value 

24. Utility and Value 



Outline. 



1. The general meaning and significance of value. 

2. Kinds of value. 

a) Subjective value. 

b) Objective value. 

3. Sources of value to the individual. 

a) Utility. 

b) Cost. 

4. Utihty, defined and described. 

5. The law of diminishing utility. 

6. Marginal utility, a measure of value in use. 

7. Utihty and demand. 

a) Demand, defined and described. 

b) Elasticity of demand. 

c) The law of demand. 

8. Marginal utility in industrial society. 

Exercises : 

1. What is the general sense in which the term, 'Value," 
is used? Ely, 1 09-11. 

2. Distinguish between the "narrow" sense and the 
"broad" Sense in which the term "value" is used. What 
are the conditions in industrial society which make the sub- 
ject of value so significant in economic science? Ely, 15 1-3; 
Taussig, I : 11 3-4. 

3. Distinguish, both by statement and by illustration, 
between subjective value and objective value. Ely, 137 
and 155; Seager, 53; Gide, 221. 

92 



VALUE 93 

4. Point out the relation between utlility and value, 
meaning- "exchange value." Seager, 54; Gide, 221-2. 

5. What are the sources of value? What are the con- 
ditions in modern society which make a consideration of 
these sources important? Gide, 56-7. 

6. Define utility. What are the different kinds of 
utility? Give an illustration of each. 

7. State and illustrate the four characteristics of human 
wants. Seager, 70-2; Ely, 133. 

8. State and illustrate the law of diminishing utility. 
Ely, 133; Seager, 70; Bullock, 88-91 ; Taussig, i : 120-124; 
Materials, 20-5. 

9. State the law of diminishing utility with reference to 
future goods and illustrate it. Seager, 71-2; Materials, 

25-7- 

10. Define marginal utility and point out its influence in 
the determination of "values in use." Seager, 89-90 ; Taus- 
sig, 1 : 124-6. 

11. Define "demand" and specify the conditions under 
which demand, in the economic sense, exists. Bullock, 
iio-ii ; Ely, 156-9. 

12. Explain the term "elasticity of demand." Ely, 159- 
161 ; Nourse, 456-7. 

13. State the law of demand. Bullock, 11 1-3; Seager, 

73-4. 

13. Give a concrete illustration of the influence of 
changes in the price of fresh fruits upon the demand for 
them. Nourse, 468-9. 

15. In what respects is the demand for agricultural 
products elastic ; in what respects inelastic ? Nourse, 457-9. 

16. Give some concrete illustrations of the influence 
of the erratic notions of purchasers upon the demand for 
staple commodities in certain markets. What practical bear- 
ing has a knowledge of these practices upon a consumer? 
Upon the producer? Nourse, 461-5. 



94 OUTLINES AND EXERCISES IN ECONOMICS 

17. What is Engel's Law of Consumption? In what 
respects should the statement of this law be modified so as 
to be representative of American conditions? Materials, 
27-33; Ely, 144-6. 

18. What are the circumstances and conditions in mod- 
ern society which determine the "standard of living" for 
the majority of people? What is the significance of a 
"standard of living" in modern life? Materials, 33-37; 
Bogart and Thompson, 827-9. 

19. What is the influence of our standard of living 
upon the demand for staple commodities and hence upon 
the prices of these commodities? Nourse, 469-70; Bogart 
and Thompson, 827-9. 

20. Is it the "high cost of living" or the "cost of high 
living" which is responsible for the present period of high 
prices? 

21. Discuss the possibilities of influencing the demand 
for foodstuffs through changes in diet. Nourse, 101-7. 



VALUE 95 

25. Cost and Value 
Outline: 

1. Production and sacrifice. 

2. Meaning of the term ''cost of production." 

a) Cost of production distinguished from ''expenses of 
production." 

3. Marginal cost of production and value to the individual. 

4. Marginal cost of production and value in industrial 
society. 

5. Cost of production and supply. 

a) Supply, defined and described. 

b) Conditions of limited supply. 

6. Relation of utility and cost in the determination of value. 

Exercises: 

1. What is the relation between production and sacri- 
fice as related to consumption ? . Ely, 146-8. 

2. Define "cost of production" and distinguish it from 
"expenses of production." Ely, 148; Seager, 58; Fetter, 
i: 349-51. Seligman, 242-4. 

3. Is there any "expense of production" involved in 
gathering wild strawberries or grapes, when one has free 
access to the land on which they grow? How much does 
such fruit cost? 

4. What is the "expense of production" involved in 
growing a crop of corn? What is the "cost of production" 
for such a crop? 

5. What is meant by "marginal cost of production"? 
What is the relation of marginal cost to the value of all the 
available units of a given supply of goods? Seager, 92-4; 
Seligman, 245-6. 

6. Where would you expect to find the marginal pro- 
ducer of wheat? Of corn? Of beef cattle? 



96 OUTLINES AND EXERCISES IN ECONOMICS 

7. What is the relation of marginal cost of production 
to value in industrial society? Bullock, 209-11; Seager, 
100-3. 

8. Define supply. Distinguish between "available sup- 
ply" and "potential supply." Fetter, i : 46-7; Bullock, 194; 
Ely, 162-4. 

9. What are the conditions under which the supply of 
a commodity may be limited. 

10. What are the different kinds of costs that may be 
encountered in endeavoring to increase the supply of a 
commodity? Describe and illustrate each. Ely, 170-4. 

11. From the cost diagram in the Materials (Page 396) 
make a statement which will show the constituent elements 
in the cost of manufacturing and selling a commodity. 

12. Make a statement showing the nature, relative im- 
portance and most significant aspect of the items that enter 
into cost. Materials, 397-406. 

13. Discuss the desirability of buying "package goods" 
from the standpoint of cost, as well as utility. Materials, 
415-6. 

14. For a good illustration of the different costs of 
production to different producers. See Materials, 417-8. 
How do you account for the fact that the producer whose 
cost is $43 a ton can stay in business in competition with 
other producers whose costs are from $5 to $15 a ton 
lower than his? 

15. Account for the large supply and low prices of 
agricultural commodities during the period 1870-90, and for 
the. limited supply and high prices of the subsequent period. 
Nourse, 437-42. 

16. State and illustrate the relation which exists be- 
tween utility and cost in the determination of value. Bul- 
lock, 211-12. 



B. Price 

26. Competitive Price 
Outline: 

1. The situation in a competitive market. 

2. Competition and price at a given time, market value. 

3. Competition and price over a period of time, normal 
value. 

4. Influence of speculation on competitive price. 

5. The control of organized speculation by law. 

6. Public policy regarding competition as a regulator of 
price. 

Exercises: 

1. Point out the possible situations that may exist m a 
competitive market. Which one is the most common and 
important? .Seager, 1 12-17. 

2. Show, graphically or otherwise, that, at a given 
time, competition tends to H.v price at a point zvhere de- 
mand and supply are equalized, i. e., where "the greatest 
number of transactions takes place." Seager, 113-4; Bul- 
lock, 194-8; Ely, 164-5; Fetter, 1:64-68. 

3. What are the circumstances which influence the cal- 
culations of buyers in a competitive market? Of sellers? 
Seager, 109-10. 

4. Show how and why it is, that : Over a period of 
time, competition always tends to Hiv price at a point which 
just corresponds to the cost of production to the marginal 
producer. Ely, 167-70; Nourse, 420-21; Bullock, 200-4; 
Taussig, I : 170-6 and 183-5. 

5. In the following quotation from Professor Alfred 
Marshall, a very noted English economist, point out the 

97 

13 



98 OUTLINES AND EXERCISES IN ECONOMICS 

influence of the time element in the determination of com- 
petitive price: 

''Thus we may conclude that, as a general rule, the 
shorter the period which we are considering, the greater 
must be the share of our attention which is given to the 
influence of demand on value, and the longer the period, 
the more important will be the influence of cost of produc- 
tion on value. For the influence of changes in cost of 
production takes, as a rule, a longer time to work itself 
out than does the influence of changes in demand. The 
actual value at any time, the market value as it is often 
called, is often more influenced by passing events and by 
causes whose action is fitful and short lived, than by those 
which are working more persistently all the time. But in 
long periods, these fitful and irregular causes in large meas- 
ure efface one another's influence, so that in the long run 
persistent causes dominate value completely. Even the 
most persistent causes are, however, liable to change, for 
the whole structure for production is modified, and the 
relative costs of production of different things are per- 
manently altered from one generation to another."* 

6. What are some of the conditions which disturb the 
complete adjustment of competitive price to the cost of pro- 
duction? What is the situation, however, over the greater 
part of the "economic field" and what is the "tendency"? 
Taussig, 1 : 176-9. 

7. For views regarding the relation between cost of 
production and value which are somewhat different from 
those set forth in the preceding exercises, see Fetter, i : 
351-2, and Seligman, 260-6. 

8. Describe the processes in actual trade which establish 
a "single price." Seager, 117-8; Taussig, i: 153-5. 

9. What are the advantages of the one-price system? 
Taussig, i: 155. 

10. What do we mean when we speak of a "fair price"? 
Taussig, i: 155-6. 



*Principles of Economics, Fifth Edition, P. 250. Copyright by The MacMillan 
Co., New York. (1907.) 



PRICE 99 

11. When is a price "just and reasonable"? Ely, 183-4. 

12. What is speculation? What is the function of 
speculation and what are some of the evils connected with 
it? Taussig, i : 159-69; Fetter, i : 363-7. 

13. Contrast ''dealing in futures" with ''selling short." 
Do you think either of these types of transactions should 
be abolished by law? 

14. Discuss the problem of regulating organized specu- 
lation by law? Materials, 391-6. 

15. A government agent recently asserted (May, 1917) 
that the farmers sold their crop of wheat for the season of 
1916 at $1.30 a bushel, whereas the price of wheat on the 
Chicago Board of Trade was over $3.00 a bushel at that 
time. Is it true that the speculator can "manipulate" the 
market so as to deprive the farmer of the full value of his 
wheat and the consumer of the full enjoyment of his 
money income? Hamilton, 168-70; Ely, 622-5. 

16. Is life a "gamble"? Hamilton, 165. 

17. Point out the border line between investment, spec- 
ulation and gambling. Hjamilton, 165-8. 

18. In a recent book (Concentration and Control, pp. 
76 and 87)* President Charles R. Van Hise, of the Uni- 
versity of Wisconsin, makes the following significant 
statement regarding the effectiveness of competition as a 
regulator of price : 

"Competition for the control of prices and quality of 
goods has been a faith which has been believed in by the 
great majority of people of America; it has been the funda- 
mental principle of the common and statute law upon which 
our court decisions controlling trade have been built up. 
Every proposal to legalize cooperation in trade has been 
stoutly resisted as interfering with the inflexible law of com- 
petition, the bulwark of our industrial liberty. 

"The producer may do as he pleases with reference to 
quality; he may ask the price he can get, but he cannot 
combine with another producer in the regulation of price, 

♦Copyright by The MacMillan Company. (1912.) 



100 OUTLINES AND EXERCISES IN ECONOMICS 

or do anything which may be interpreted to interfere with 
complete independence in trade. The theory is that the 
quaHty will be kept up and the price kept down by com- 
petition, and that the purchaser needs no further protec- 
tion. * * * " 

After pointing out many particular ways in which com- 
petition has failed, President Van Hise states the following 
general conclusion : 

''The foregoing description of the situation can not but 
convince any man who will look the facts in the face that the 
blind faith that prices are adequately controlled by compe- 
tition in the United States is no longer justified, if, indeed, it 
eVer was justified. Unrestrained competition does not, as 
a matter of fact, exist for many articles, except to a very 
limited degree, at the present time. Everywhere there is 
restraint of trade by agreement or combination, either law- 
ful or unlawful. So inevitable is this situation that we have 
seen how the law forbidding restraint of trade has accel- 
erated concentration of industry from the loose agreement 
to the pool, from the pool to the trust, from the trust to the 
holding company, and from the holding company to the 
giant completely consolidated industry." 

Contrast the foregoing statements with those made by 
Professor Taussig and other economic writers regarding the 
same point. Which of these men do you consider the most 
competent to judge of this situation? Taussig, i: 65-6; 
Ely, 154. 



PRICE 101 

27. Monopoly Price 

Outline: 

1. Determination of monopoly price. 

a) The principle of monopoly price. 

b) Explanation of the method by which the principle 
is applied. 

2. Economic limitations to monopoly price. 

a) Fear of substitution. 

b) Fear of inducing competition. 

c) Fear of governmental interference. 

3. The law of monopoly price. 

4. Contrast between monopoly price and competitive price. 

5. Attitude of the public toward monopoly. . 

a) Former. 

b) Present. 

6. Public policy regarding monopoly. 

a) Distinguishes between different classes of monopoly. 

b) Condemns and abolishes some. 

c) Accepts and regulates others. 

d) Accepts and owns and operates still others. 

Exercises: 

I. Show how and why it is true, that: The monopolist 
always tends to fix price at the point that yields the highest 
net returns. Ely, 200-202; Seager, 219-20; or Hamilton, 
418-9; Bullock, 316-8. 

2. Explain the economic limitations to- monopoly price 
that are listed in the outline above and give some concrete 
illustrations of their influence on prices at the present time. 
Seager, 216-19; Hamilton, 420-2. 

3. State a law of monopoly price and show the results 
of its operation as shown by a contrast of monopoly prices 
in Europe and in America. Ely, 203-4. 



102 OUTLINES AND EXERCISES IN ECONOMICS 

4. Point out the difference in principle between mo- 
nopoly price and competitive price and state the reason for 
the popular objection to paying monopoly prices. 

5. Is the objection of the public to paying monopoly 
prices well founded? Ely, 204-7. 

6. Has the general attitude of the public toward mo- 
nopoly changed any in recent years? Compare the state- 
ments made in Hamilton, 400-401. 

7. When the government ''accepts and regulates" a 
monopoly, what principle should it observe in fixing the 
prices of the monopolized products? Ely, 209. 

8. If a government "owns and operates" a monopoly, 
should it follow a different principle than in. the preceding 
exercise in fixing the prices of its products? 

The City of Cedar Falls has a monopoly on the produc- 
tion and distribution of electric light and power within the 
city limits. Last May the rates for light and power were 
reduced. Would it have been a better policy for the city 
to have continued to charge the higher rates for the use of 
current and to have used the surplus receipts from the 
higher charge to lessen the amount of revenue for general 
purposes to be derived from taxation? Give reasons for 
your answer. 



C. Exchange 

28. Money 

1. A barter system of exchange. 

2. Functions of money. 

a) To serve as a standard of value. 

b) To serve as a medium of exchange. 

c) To serve as a standard of deferred payments. 

d) To serve as a store of value. 

3. Historical account of the development of money. 

4. Qualities of good money. 

5. Definition of money. 

6. Relation of the government to- money. 

a) Can regulate but not make money. 

b) Control the coinage. 

c) Control the issues of paper money. 

d) Control the legal tender quality. 

7. Kinds of money. 

a) Standard. " . 

b) Token. 
c) Credit. 

Exercises: 

1. Tell what is meant by the term ''exchange by bar- 
ter" and point out the difficulties and inconveniences of such 
a system of exchange. Materials, 443-5 ; Seager, 322 ; Moul- 
ton, 5-6. 

2. In what sense does money serve as a standard or 
"denominator " of value ? Is it correct to speak of money as 
a "measure" of value ? Moulton, Money and Bankings 7-8 ; 
Seager, 323. 

3. In what respects does money serve as a medium of 
exchange? Moulton, 8-10; Seager, 322-3. 

103 



104 OUTLINES AND EXERCISES IN ECONOMICS 

4. What is the special significance of the use of money 
as a standard for deferred payments? Moulton, 12; Seager, 
323-4; Fetter 2: 78-81. 

5. If a tenant leases a farm for a share of the crop, 
and, lacking the seed necessary for planting, offers to bor- 
row it and return grain, bushel for bushel to the owner at 
harvest time, would such an agreement be a satisfactory 
contract? Give reason for your answer. 

6. How does money serve as a store of value? Moul- 
ton, 10. 

7. Give a brief historical account of the development 
of money. Taussig, i : 114-5 and 228-30; Moulton, 46 and 
62-6. 

8. Make a list of the qualities of a satisfactory money 
material and tell what is meant by each. Moulton, 54-56; 
Fetter, 2: 32-3. 

9. What is money? Ely, 251-2; Moulton, 6; Fetter, 
2 : 37. 

10. Is the following statement a satisfactory definition 
of money: "Money is a convenient token of exchange which 
has been invented by civilized man to facilitate commerce." 

11. Point out the relation which exists between the 
government of a country and its money supply. Seager, 
326-8. 

12. What is meant by the term 'legal tender"? Fetter, 
2:66; Kinley, Money, 47; Palgrave, 2 : 590. 

13. Distinguish between the different kinds of money 
specified in the outline above. Seager, 328. 



EXCHANGE 



105 



29. Money (Concluded) 
Outline: 

1. Concurrent circulation, 
a) Gresham's law. 

h) Maintenance of parity in the present circulation. 
x) Relation of the value of gold coins to the value 

of gold bullion. 
3,') Relation of other forms of money to gold coins. 

2. Relation of the value of money to prices. 

3. Inflation and contraction of the currency. 

a) Natural. 

b) Artificial. 

4. Evil effects of changes in the value of money. 

Exercises: 

I. State Gresham's law and show how and why it is 
true. Give some historical illustrations of its operation. 
Gide, 297-300; Seager, 328-30; Fetter, 2: 60-61; Sehg- 
man, 486-8. 

2. The United States Treasury report gives the fol- 
lowing statement of the monev in circulation in this country 
on July I, 1916: 



Gold coin . . • . . 
Standard silver dollars . 
Subsidiary silver 
Gold certificates 
Silver certificates 
Treasury notes (Act of 1890) 
UViited States notes 
Federal reserve notes . 
Federal reserve bank notes 
National bank notes 



$ 637,250,272 

66,414,932 

171,449,851 

1,413,823,289 

489,910,937 

2,098,165 

341,719,547 
173,100,785 

8,961,995 
719,400,794 



Total . . . . . . . $4,024,130,567 



14 



106 OUTLINES AND EXERCISES IN ECONOMICS 

Show how it is (a) that the gold coins set forth in the 
table above have exactly the same value in circulation as 
their weight in gold bullion, and (b) that all the other 
forms of money set forth in the table above circulate at par 
with the gold coins. Seager, 330-6; Ely, 252-60; Taussig, 
1 : 327-8. 

3. If Congress had adopted the proposal of the silver 
advocates in 1896 to coin silver dollars in "free and un- 
limited" quantities, what would have happened to the value 
of silver dollar coins? 

4. State and illustrate the relation which exists be- 
tween the value of money and prices. Seager, 324; Moul- 
ton, 1 1-2. 

5. Explain what is meant by inflation of the currency; 
contraction of the currency. Bullock, 258-60. 

6 What are some of the evil effects of changes in the 
value of money? Bullock, 260-63; Taussig, i: 297-301. 

7. Professor Fetter has prepared an excellent diagram 
(2: 48-9) which shows the changes in the world's produc- 
tion of gold during the past century. What is the effect 
of the changes in gold, production on prices? . 

8. Give a brief account of the changes that have taken 
place in prices in the United States since i860. What has 
been the influence of changes in the production of gold on 
these price fluctuations ? Fetter, 2 : 85-89. 

9. What has been the influence of changes in the 
value of gold on the cost of living during recent years? 
Materials, 466-73. 



EXCHANGE 107 

30. Credit 

1. Credit, defined and described. 

2. Foundation for credit. 

a) Probable future value of property. 

b) Probable future income. 

c) Personal character of the borrower. 

3. Forms of credit. 

a) Book credit. 

b) Checks. 

c) Drafts and bills of exchange. 

d) Notes. 

4. The monetary function of credit. 

5. The influence of credit on prices. 

6. Credit distinguished from capital. 
Exercises: 

1. Define credit and distinguish a credit transaction 
from barter and from a cash transaction. Moulton, Pt. 
2: 13-15; Ely, 282-5. 

2. Distinguish between the legal and the economic con- 
ceptions of credit ; also' between consumption credit and 
production credit. Seligman, 518-21. 

3. What is the relative importance of the respective 
bases of credit set forth in the outline above? Ely, 285-6; 
Moulton, Pt. 2: 15-16. 

4. Describe the forms of credit listed in the outline 
above and as definitely as you can, state the relative im- 
portance of each? Seager, 341-2; Moulton, Pt. 2:32-9; 
Materials, 500-3. 

5. What is the monetary function of credit? Moulton, 
Pt. 2 : 28-30. 

6. What is the influence of credit on prices ? Seligman, 
550-53; Taussig, i: 427-30; Bullock, 288-93. 

7. Distinguish between credit and capital. Seager, 
350-2; Gide, 391-4; Moulton, Pt. 2:26-8. 



108 OUTLINES AND EXERCISES IN ECONOMICS 

31. Banks and Banking 
Outline: 

1. Bank, defined and described. 

2. Functions of a bank. 

a) To receive deposits. 

b) To make loans and discounts. 

c) To issue drafts and bills of exchange. 

d) Under certain circumstances, to issue bank notes. 

3. Services which a bank renders a community. 

a) Serves as a bookkeeper for the community, 

b) Makes possible an enormous volume of transactions 
with a minimum of cash. 

c) Saves time and labor. 

4. The bank statement. 

a) Capital, surplus and undivided profits. 

b) Obligations to depositors and noteholders. 

c) Loans, discounts, bonds and other securities. 

d) Due from ''other banks and bankers" and from the 
government. 

e) Cash resources. 

/) Bank building, furniture and fixtures. 

5. The function of governmental supervision. 

Exercises: 

1. Define the term, bank; in what sense may a bank 
be spoken of as a "manufactory of credit?" Moulton, Pt. 
2:49; Harris, Practical Banking, 15-18; Willis, American 
Banking, 2-5. 

2. Is the following statement a good definition of a 
bank: "A bank is a business unit authorized by law solely 
for the purpose of facilitating credit transactions." Give 
reasons for your answer. 

3. Why should a bank be excluded from the privilege 
of owning and operating a farm, a manufacturing plant, or 



EXCHANGE 109 

a grocery store if it could make a larger return on its in- 
vestments in that way than in lending to farmers, manufact- 
urers and merchants? 

4. The separate functions of a bank which are usu- 
ally mentioned when this subject is discussed are set 
forth in the outline above. Distinguish between each of 
them. What is the "one underlying function of a bank" 
and how is this function performed? Willis, 6-7; Moul- 
ton, Pt. 2 : 60-62. 

5. In what respects and in what sense does a bank 
render the services specified in division 3 of the outline 
above ? 

6. What is the meaning of the different items listed 
above which appear in an ordinary bank statement ? Willis, 
22-7 and 147-52 ; White, Money and Banking, 3rd ed., 
205-215. 

7. The following rule is sometimes given for testing the 
solvency of a bank: "Double the capital stock, add the sur- 
plus and undivided profits and find what per cent this sum 
is of the total assets of the bank; the result will show how 
much the assets of the bank would have to shrink before the 
depositors and noteholders would lose anything." Apply 
this test to the bank statements in Materials, 519-20 and 
Moulton, Pt. 2 : 51-3, and to the most recent statement of 
your home bank. 

8- Is a bank statement a satisfactory indication of the 
solvency of a bank? WiUis, 184. 

9. What is the function of governmental supervision 
of the banking^ business and what are the principles which 
are observed in this supervision? Seager, 354-6; Moulton, 
197-9; Willis, 186. 

10. What are the most frequent causes of bank failures ? 
Moulton, Pt. 2 : 213-4. 



no OUTLINES AND EXERCISES IN ECONOMICS 

32. Banks and Banking (Concluded) 
Outline: 

1. Bank deposits. 

a) Their nature and use. 

b) Reserves, a limitation to deposits. 

c) Legal protection for depositors. 

2. Bank notes. 

a) Their nature and use. 

b) Legal protection for noteholders. 

c) Bank notes in the United States secured by U. S. 
Government bonds. 

d) Bank notes in the United States secured by the use 
of "commercial paper." 

e) Elasticity in the currency, a problem in governmen- 
tal regulation. 

3. The clearing process. 

a) The general process described. 

b) Clearing houses, their organization and functions. 

c) Advantages of the clearing system. 

Exercises: 

1. State as clearly as you can a true conception of bank 
deposits and show how these deposits are built up. What 
is the nature of bank deposits and what are their signifi- 
cance? WilHs, 51-60; Seager, 348-9. 

2. A cash reserve is sometimes said to be a limitation 
on the amount of deposits which a bank may carry. Define 
the term, ''reserve," and show how this is true. Willis, 
152-4; Moulton, Pt. 2:64-6. 

3. The United States is the only country which specifies 
by law the amount of cash reserves which the banks should 
carry. Why should it make this specification? Moulton, 
Pt. 2 : 209-10. 

4. What other provisions are made for the security of 
the depositor? Ely, 286-8. 



EXCHANGE 111 

5. In what respects does a bank note differ from the 
ordinary promissory note of a borrower and from a deposit 
account? Why do banks issue bank notes? Seager, 349-50; 
WilHs, 85-7 and 89-91. 

6. Why should the government endeavor tO' protect the 
noteholder by specifying the conditions under which bank 
notes may be issued? What are some of the common pro- 
visions of law that are made for this purpose ? Willis, 87-9. 

7. What provisions have been made by law for the pro- 
tection of noteholders in the United States? What is the 
ultimate security of the noteholder? Ely, 291-2; Willis, 
92-96. 

8. Describe the method by which bank notes may be 
issued under the Federal Reserve system. Willis, 96-101 ; 
Conway and Patterson, The Operation of the Nezv Bank 
Act, 146-g. 

9. Give a brief description of the Federal Reserve Sys- 
tem, being careful to point out what may be regarded as its 
most significant features, Ely, 307-13; Fetter, 2:118-128. 

10. Wha-t is meant by the term, elasticity of the cur- 
rency? What recent changes in the banking laws of the 
country are designed primarily to give our currency this 
desirable quality? Materials, 525-31; Ely, 298-303; Willis, 
104-6; Bogart, 183-5. 

11. Describe the process by which checks are cleared 
between banks in communities where there is no clearing 
house. Moulton, Pt. 2 : loo-i. 

12. Give a brief account of the early organization of 
clearing houses in the United States; point out also the 
principle involved in clearing. Moulton, Pt. 2 : 102-104. 

13. Describe the organization and operation of a clear- 
ing house. Materials, 503-7. 

14. Why is there so much "waste motion" involved 
ifi the clearance of out-of-town checks? Moulton, Pt. 2: 
1 15-6. 



112 OUTLINES AND EXERCISES IN ECONOMICS 

33. International Trade 
Outline: 

1. The nature of international trade. 

a) 'Troductive." 

b) ''Indispensable." 

c) "Profitable." 

2. Advantag"es of international trade. . 

3. The balance of trade. 

4. The nature and extent of the foreign trade of the 
United States. 

5. International exchange. 

6. The rate of exchange. 

7. Influences affecting the shipment of gold between coun- 
tries. 

a) The interest rate. 

b) The level of prices. 

8. Tendencies in the United States regarding shipments of 
gold. 

Exercises: 

1. In what respects does international trade possess the 
characteristics expressed by the adjectives set forth in the 
outline above? Ely, 361-3. 

2. What is the "law of comparative costs?" Hamilton, 
271-3; Fetter, 2: 189-191. 

3. What are the advantages of international trade? 
Hamilton, 270-1 ; Fetter, 2 : 185-9. 

4. How does the modern concept of a "balance of trade" 
differ from the earlier one? Make a list of the items that 
enter our present balance of trade and tell something of 
the nature and relative importance of each. Ely, 354-6; 
Taussig, 1 : 468-75 ; Materials, 549-558. 

5. How is the foreign trade of the United States chang- 
ing in its nature and extent? Taussig, i : 475-6. 



EXCHANGE 113 

6. Define international exchange and describe the 
method by which it is conducted. Ely, 345-7; Taussig, 
I :zj49-456; Hamilton, 275-6; Fetter, 2: 191-5. 

7. What is the ''rate of exchange" and how is it deter- 
mined? What are the so called "gold points" or "specie 
points ?" Ely, 347-350 ; Hamilton, 2.y(^-'] ; Seager, 366-7. 

8. Show how it is that the interest rates and the price 
levels in different countries affect the shipments of gold 
between them. Ely, 350-4; Fetter, 2: 197-8; Seager, 367-8. 

9. What are the tendencies in the United States regard- 
ing the shipments of gold? Should the United States seek 
to export or import gold as a regular and permanent policy ? 
Give reasons for your answer. Seager, 370-1. 

10. What has been the influence of the war in Europe 
on the shipments of gold into and out of the United States ; 
what influence also has the war had on foreign exchange 
rates? 



15 



114 OUTLINES AND EXERCISES IN ECONOMICS 

. 34. The Tariff Question 
Outline: 

1. The general idea of a tariff. 

2. Kinds of tariffs, classified according to the purposes 
for which the tariff is levied. 

a) "Free trade" or "tariff for revenue only." 

b) Protective tariff. 

c) Prohibitive tariff. 

3. Arguments for a protective tariff. 

a) The infant industry argument. 

b) The home market argument. 

c) The "balance of trade" argument. 

d) The fiscal argument. 

e) The labor argument. 

• /) The vested interest argument. 

4. Arguments against a protective tariff. 

a) Unprofitable use of capital and labor. 

b) High prices tO' consumers. 

c) Labor does not share in the benefits of the tariff. 

d) Taxation of one class for the benefit of another. 

e) Demoralization of the legislature. 

f) Fosters monopoly. 

5. The influence of the tariff in industry. 

a) On prices. 

b) On wages. 

c) On employment. 

d) On combination and monopoly. 

e) On general prosperity. 

6. The tariff policy of the United States. 

a) Recent changes in policy. 

b) The present policy. 

c) The problem of making a tariff law. 

d) The future tariff policy of the United States. 



EXCHANGE 115 

Exercises: 

1. Look up a definition of a tariff in two or three 
different places. Is it correct to speak of a tariff as being 
a tax? 

2. Distino-uish between the different kinds of tariffs 
specified in the outline above. Fetter, 2 : 201-2. 

3. "In all tariff legislation the true principle of pro- 
tection is best maintained by the imposition of such duties 
as will equal the difference between the cost of production 
at home and abroad, together with a reasonable profit to 
American industries." Republican National Platform. 

Make a list of the items that account for the difference 
in the cost of production of wool in the United States and 
in foreign countries. Hbw great is that difference ? Fetter, 
Sourcebook in Economics. 347-357. 

In view of the facts presented by the Tariff Commission, 
what were Ex-President Taft's recommendations regarding 
the tariff" on wool? F'ctttr,' Sourcebook in Economics, 
358-60. 

4. If an English mianufacturer can make a reasonable 
profit by manufacturing woolen cloth and selling it in 
England at $1.25 a yard when it costs 5 cents a yard 
additional to put the same cloth in the American market 
and costs the American manufacturer $1.75 a yard to 
manufacture and sell a similiar grade of cloth, how much 
tariff should be levied on the English cloth in order to 
protect the American manufacturer? 

5. If Congress should accidently make a mistake and 
levy a rate twice as high as the one which would just 
equal the difference in the cost of production at home and 
abroad, what kind of a tariff would we have ? 

6. If a protective tariff does just equal the difference 
in the cost of production at home and abroad so that the 
foreign and domestic products appear on the counters of 



116 OUTLINES AND EXERCISES IN ECONOMICS 

our retail stores at exactly the same prices, which commodi- 
ties do yon think will be most frequently purchased ? How 
will such a tariff affect the revenue to the government? 

7. State the theoretical ground upon which a protective 
tariff may be justified. Hamilton, 295-6. 

8. State the infant industry argument for a protective 
tariff and discuss its validity. In what respects do you 
think this argument may reasonably be used at the present 
time? Seager, 386; Taussig, 1:526-530; Hamilton, 298- 
301 ; Fetter, 2 : 203-5. 

9. Describe the method by which a protective tariff is 
presumed to build up a "home market" and discuss the 
validity of this argument. Seager, 387; Fetter, 2:205-8; 
Taussig, 1 : 510-11. 

10. State and discuss the so-called "labor argument." 
Seager, 389; Taussig, i : 511-16; Ely, 373. 

11. What is the "balance of trade" argument? Fetter, 
2 : 208-210; Hamilton, 277-8. 

12. What do you think of the validity of the vested 
interest argument? Seager, 390; Fetter, 2:215-7. 

13. What is the theory of free trade? Hamilton, 273-5. 

14. What arguments of the free trader should be 
regarded as meriting serious consideration and why? Ely, 
374-380. 

15. In speaking of the influence of the tariff on prices. 
Professor Taussig says : "The truth is that the levy of a 
duty may have no influence at all on domestic price ; or it 
may raise the price of the dutiable commodity by its full 
amount ; or it may have an effect intermediate between 
these extremes." Set forth the circumstances under which 
each phase of the foregoing statement is true. Taussig, 
Some Aspects of the Tariff Q^iestion, Z~iy. 

16. Write a brief statement in which you will specify 
the influence of the tariff on each of the other phases of 



EXCHANGE 117 

industry mentioned in division 5 of the outline above. 
Hamilton, 309-313 ; Fetter, 2 : 210-15. 

17. Give a brief account of the changes in the tariff 
legislation of the United States since 1890 and indicate 
the changes of policy that were brought about by the 
respective Acts that were passed during this period. Fetter, 
2:229-36; Bogart and Thompson, 760-68. 

18. Discuss the problem of making a tariff law that 
will equalize the difference in the cost of production at home 
and abroad. Fetter, 2:236-8; Taussig, 1:516-8; Hamil- 
ton, 319-23, 329-30 and 333-43- 

19. The trend of tariff legislation during the past 
century has been distinctly toward protection. Point out 
some of the influences which may tend to modify the tariff 
policy of the United States in the future. Ely, 380-82 ; 
Taussig, 1 : 540-46. 

20. Who is Professor Taussig? What responsible 
official position does he hold at the present time, (August, 
1917)? 



PART III. THE DISTRIBUTION OF 

WEALTH AND INCOME IN 

INDUSTRIAL SOCIETY. 

35. The General Aspects of Distribution 
Outline: 

1. The term, ''distribution," defined and explained. 

a) Wealth distinguished from income. 

b) The general problem in distribution. 

c) The personal problem in distribution. 

2. The importance of the problem. 

a) The shift in emphasis from production of wealth to 
distribution of wealth. 

b) The facts of distribution. 

c) Reasons for a more equitable distribution. 

d) Means for accomplishing a more equitable distribu- 
tion. 

3. The methods by which distribution is accomplished, 
o) By force and by status. 

b) By competition. 

c) By authority. 

4. The bases of distribution. 

a) Equality. 

b) Productivity. 

c) Needs. 

5. The law of competitive distribution. 

Exercises: 

I. Define "wealth" and "income" as these terms are 
used in economics. Use any good text or reference book. 
Contrast the definitions which you find. 

118 



DISTRIBUTION OF WEALTH AND INCOME 119 

2. Is the following statement a satisfactory distinction : 
"Wealth consists of the aggregate stock of valuable, material 
things in a country at a given time : while, income is the 
flow of goods and services which results from engaging 
in the process of production over a period of time." Give 
reasons for your answer. 

3. Refer to the tables setting forth the national wealth 
of the United States in 1912 (Ely, 112; or Bogart and 
Thompson, 814) and account for the fact that all the paper 
money and the value of all the farm mortgages and of the 
corporation stocks and bonds of the country have been 
omitted from this statement. 

4. What are the constituent elements in the national 
income? How do the per capita incomes of the people of 
the United States compare with those of England and 
Prussia? Wilford I. King in Dr. Ely's Property and Con- 
tract, 2 : 829-30. 

5. Distinguish between the . general and the personal 
problems in the distribution of wealth. Bogart, 199; Fetter, 
2:470-71. 

6. "Within the last century the center of interest in 
the practical application of economic principles has decid- 
edly shifted from production to distribution. The earlier 
writers on economics, as evidenced by the mercantilists of 
the seventeenth and eighteenth centuries, even Adam Smith, 
were chiefly interested in methods of increasing a nation's 
wealth. With the introduction of the factory system and 
the opening up of vast natural resources by improvements 
in mining and transportation, the production of wealth has 
enormously increased, and now the question of the method 
of its distribution or division is felt to be more pressing." 
(Bogart, 198). The foregoing is a good statement of the 
modern tendency in economic thought. Is this shift in 
emphasis from the problems of production to those of dis- 



120 OUTLINES AND EXERCISES IN ECONOMICS 

tribution justified by the facts? Ely, 119-20; King, The 
Wealth and Income of the People of the United States, 
29-31 and 134-6; Agricultural Yearbook, 1916, 18-21. 

7. It is frequently asserted in the United States that 
the rich are getting richer while the poor are becoming 
poorer. Do the facts of the case warrant this conclusion? 
Bogart and Thompson, 815-27; Ely, 546-9; Hayes, Intro- 
duction to the Study of Sociology, 103-8. 

8. Contrast inequalities of wealth with other inequaH- 
ties in human society. State the purposes for which wealth 
is sought and justify the existing inequalities of wealth or 
show that they are not justifiable. Gide, 451-4. 

9. Why should the public be interested in a more 
equitable distribution of wealth and income? King, 54-7; 
Hayes, 98-103. 

10. Mention and discuss the proposals which are fre- 
quently put forth for accomplishing this desirable end. 
Bogart, 200-1. 

11. Describe and discuss each of the methods by which 
the distribution of wealth is brought about. Fetter, 2 : 
471-2, 476-81 and 481-2. 

12. State the current and popular explanation of the 
distribution of wealth and point out the fallacies and in- 
accuracies in this explanation. Gide, 454-8. 

13. In a former edition of his Outlines of Economics 
(Revised and Enlarged Edition, 1908, pp. 114-5) Dr. Ely 
presents three ideas which are frequently regarded by diff- 
erent people as suitable bases of distribution. Tell what 
is meant by each and discuss the desirabihty and possibility 
of putting it into practice. For a somewhat similar dis- 
cussion, see Taussig, 2 : 449-54. 

14. Which one of the three bases of distribution men- 
tioned in the foregoing exercise have those in mind who 



DISTRIBUTION OF WEALTH AND INCOME. 121 

advocate a le^al minimum wage for women? Which one 
have those usually who object to such measures? 

15. State the law of competitive distribution as a 
tendency in modern economic society. Seager, 276. 

16. Which one of the bases mentioned in Exercise 12, 
above is embodied in the legal system of the United States 
so far as that system relates to the distribution of wealth? 



16 



122 OUTLINES AND EXERCISES IN ECONOMICS 

36. Rent 

Outline: 

1. The rent concept. 

a) Rent, that portion of the social income attributable 
to the services of land in production. 

h) Distinction between the economic and commercial 
uses of the term. 

c) Economic rent not affected by ownership. 

2. The determination of rent, 
a) On the extensive margin. 
h) On the intensive margin. 

3. Rent, a surplus due to the productivity of superior 
grades of land. 

4. Relation of rent to the prices of agricultural products.' 

5. Relation of rent to the value of land. 

6. Rent and social progress. 

7. The unearned increment in land values. 

Exercises: 

1. Look up a definition of rent in two or three good 
texts or reference books and compare them with the state- 
ment in subdivision, ''a," in part i, of the outline above 
Is the statement referred to correct? Give reasons for your 
answer. 

2. The term, rent, in economics has come to have a 
technical use. Contrast its use in this technical sense with 
its commercial use. Nourse, 626-7; Fetter, i : 155. 

3. If a man owns a piece of land and farms it himself, 
does his land command rent? Seager, 230; 

4. In a general way the modern explanation of rent is 
said to be the "Ricardian Theory of Rent." State this 
theory. Nourse, 616-9. 



DISTRIBUTION OF WEALTH AND INCOME 123 

5. Contrast with Ricardo's statement the explanation 
ot modern writers. Taussig, 2:57-61 or Nourse, 619-21; 
Ely, 410-15; Seag-er, 230-5; Gide, 508-11. 

6. Are the present high prices of agricultural products 
due to the fact that many farmers are paying high rents 
for the use of their land? Taussig, 2 : 55-7. 

7. If a given farm yields an average annual rental of 
$500.00 when the current rate of interest is 5%, what is 
the sale value of the land? Ely, 418-9 or Nourse, 632-3; 
Seager, 239-40. 

8. As population continues to increase and the land 
supply to become more and more limited, will rents rise so 
that the fruits of economic progress will come to be enjoyed 
only by a select few, the favored landlords, while the 
masses continue to toil harder and harder for a mere sub- 
sistence? What is the tendency in this regard in America? 
Ely, 419-22. 

9. Under what circumstances may a so-called "unearned 
increment" arise in land values? Is private possession of 
such an increment of value detrimental to public well-being? 
If so, what should be done with it? Ely, 422-5 ; Hamilton, 
724-7; Seager, 525-9; Taussig, 2:70-75. 

10. Write a brief biographical sketch of David Ricardo, 
being careful to specify the particular idea which he has 
so notably contributed to economic thought. 



124 OUTLINES AND EXERCISES IN ECONOMICS 

37. Wages 
Outline: 

1. The idea of wag"es. 

a) Wages, that portion of the social income attribut- 
able to the productivity of hired labor. 

b) Wages as personal income. 

x) Relative wages distinguished from general 

wages. 
3;) Real wages distinguished from nominal wages. 

2. The determination of general wages. 

a) The contractual character of the wage system. 

b) The maximum wage — productivity of the workers. 

c) The minimum wage — subsistence for the workers. 

d) The actual wage — relative strength and skill in 
bargaining. 

x) Nature of the demand for labor. 
y) Labor as a commodity distinguished from other 
commodities. 

3. Other theories of wages. 

a) The subsistence theory, ''the iron law of wages." 

b) The wages fund theory. 

4. Some conditions affecting the determination of general 
wages. 

a) Free land. 

b) Immigration and emigration. 

c) Changing standards of living. 

5. The determination of relative wages. 

a) Wages of marginal workers. 

b) Wages of superior or differential workers. 

c) Influences tending to perpetuate differences in rela- 
tive wages. 

Exercises: 

I. Look up in two or three good texts or reference 
books some definitions of wages and compare or contrast 



DISTRIBUTION OF WEALTH AND INCOME 125 

them with the statement made in the outHne above. Which 
one do you think really gives the correct idea of wages 
and \^hy? 

2. "General wages" is a term which relates to the 
share of the social income which goes to hired labor as 
compared with that which goes to landowners, capitalists 
and entrepreneurial managers ; while "relative wages" is 
a term used to designate the income of one worker or 
group of workers as compared with another. 

a. Wages in America are usually said to be higher 
than they are in Europe. Is this a question of general 
wages or of relative wages? 

b. The wages of a carpenter are usually higher than 
those of a teamster; so are those of locomotive en- 
gineers as compared with section men. Are these 
questions of general or of relative wages? Give rea- 
sons for your answer in each case. 

3. A worker in the steel plant in South Chicago gets 
$140 a month and after meeting his necessary living ex- 
penses has $20 a month left which he may put in a savings 
bank or spend for some recreational or educational purpose. 
A similar worker hires out to an Iowa farmer for $35 a 
month and his board, lodging and laundry and at the end of 
the month has $25 to put in a savings bank or spend for 
some recreational or educational purpose. Distinguish be- 
tween the nominal wages and the real wages in these 
instances. 

4. Describe the growth of the "wage system" and 
discuss its practicability. Fetter, 2:281-3. 

5. Explain the method by which general wages are 
determined. Ely, 442 ; Taussig, 2 : 197-202. 

6. In what sense is there a demand for labor? Ely, 
428-30. 



126 OUTLINES AND EXERCISES IN ECONOMICS 

7. Man's ability to labor is frequently spoken of as a 
commodity. In what respects does labor as a commodity 
differ from other commodities? Ely, 431-2. 

8. The right to labor and to dispose of his labor power 
as one sees fit is regarded in American law as being a 
property right. In a recent contention before Congress 
regarding the issuance of injunctions in labor disputes the 
representatives of the workers asserted that the right to 
labor should "be held and construed to be a personal right 
and not a property right." Point out the difference, if any, 
between these two kinds of rights. Do you think the repre- 
sentatives of labor are correct in their contention? 

9. State and discnss the subsistence theory of wages. 
Materials, 643-4; Ely, 437-8. 

10. What was the wages-fund theory and what were 
its fallacies? Materials, 645-7; Seager, 296-9. 

11. Point out the influences respectively of each of the 
conditions specified in the outline above on general wages. 
Ely, 440 and 438-9; Fetter, 2:375-7; Seager, 256-61. 

12. Account for the fact of differences in relative wages 
and show how they are determined. Seager, 247-55, 276-9 
and 287-8. 

13. What may be said of the influence of training and 
heredity upon the determination of relative wages? Taus- 
sig, 2: 129-34. 

14. Legally in America the laborer is free to select the 
occupation he sees fit and to rise from one grade or class 
of workers to a higher and better one. Point out in a 
general way the classification which exists among workers 
in the United States at the present time and indicate the 
economic considerations which prevent their freedom of 
movement from one class to another. Taussig, 2 : 134-42. 

15. Write a brief biographical sketch of John Stuart 
Mill. 



DISTRIBUTION OF WEALTH AND INCOME 127 

38. Labor Problems 
Outline: 

1. The wage system. 

2. The present situation. 

a) As to wages. 

b) As to hours. 

c) As to other conditions of employment. 

3. Methods of improvement. 

a) Progressive attitude of employers. 

b) Organization of labor. 

c) Labor legislation. 

4. Attitude of employers. 

a) In making individual labor contracts. 

b) Toward labor organizations. 

c) Toward labor legislation. 

5. Organization of labor. 

a) Economic justification for such organization. 
. b) Benefits of labor organization. 

x) Larger income and privileges due to collective 

bargaining. 
y) Legislation favorable to the working classes. 
2) Training in social democracy. 

c) Methods of accomplishing the purposes of labor 
organizations. 

x) Control of apprenticeship. 
3/) Restriction of output. 
2) The closed shop. 

d) Weapons. ■ 
x) The strike. 
3;) The boycott. 
2) Violence. 

e) The future of labor organization. 



128 OUTLINES AND EXERCISES IN ECONOMICS 

6. Labor legislation. 

a) To safeguard health and morals. 

b) To increase wages. 

c) To shorten hours. 

d) To promote industrial peace. 

Exercises: 

1. What is the tendency in the wage system and what 
is the problem that arises in it? Fetter, 2: 28. 

2. What is the present tendency regarding the wages, 
hours and other conditions of employment of the wage 
earning classes ; are they getting better or worse ? Selig- 
man, 420-8; Ely, 547; Nearing, Financing a Wage-Earner's 
Family, 126-9; Fetter, 2:332-5; Seager, 536-8. Two very 
excellent supplementary studies on the question of the 
present trend of wages will be found in Rubinow, ''The 
Present Trend of Real Wages," The American Economic 
Review, IV: 791-fT; and F. W. Jones, Ihid, VII; 319-30. 

3. In the following selection from The Nezif> Industrial 
Day,'^ by Hon. William C. Redfield, a manufacturer and 
present United States Secretary of Commerce, point out the 
change in attitude that is coming among employers regard- 
ing the employment and management of labor: 

"I have dwelt thus long, and yet very inadequately upon 
certain details of certain phases of a modern shop in order 
to concentrate on a single broad truth underlying all that 
has been said. This is that in our buildings or machines 
or various equipment and in our material, the most exacting 
study has been used to fit each for the purpose for which 
it was intended. We have spent, or others have spent in 
our behalf, years of patient experimenting and sums that 
thousands will not represent, to determine how best to 
adapt all these various elements to one another so that 
their relations shall be harmonious, productiye, efficient and 
economical. By economy we have not meant the absence 

♦Copyright by The Century Company, (1912.) 



r 



DISTRIBUTION OF WEALTH AND INCOME 129 

of spending', for these machines and these methods have 
cost much through many years, but we regard it as well 
spent. As between the man who offers a machine as a 
cheap tool and another who asks a greater price, we 
think first of the question, 'What will these tools do ?' and it 
is the relation of their productiveness to their cost that 
gives our decision. Let us suppose that, in the shop we 
have just visited in our thought, the present modern equip- 
ment were replaced with another of similar kind but selected 
chiefly because it was cheaper in its first cost. The result 
would be disastrous, for, as regards machines, it has been 
clearly demonstrated that productiveness is more important 
than first price .... 

"Having the best equipment bought and arranged with 
its cost as a secondary factor and its productiveness as 
the primary factor, shall we put at these machines men 
whose cost is first to be considered and whose productive- 
ness we aim to extract by a process called 'shop discipline?' 
Having with g'reat care fitted tool to mechanism, shall we, 
or shall we not, use equal care to fit the men to both? 
Having utilized the laws of light and of power and of 
mechanics to the full, intelligently and carefully, shall we, 
or shall we not, now utilize the laws of human nature to the 
full with the same intelligence and care? Shall we recog- 
nize that at the point where our thought is halting, we are 
passing over from the inert to the responsive and that in 
addition to all the other laws and conditions under which 
we have so carefully worked hitherto there has come into 
play a new law now, the law of life and growth and 
thought? .... 

"Here we touch the very core of our subject and upon 
the way in which we deal with it, shall it be known whether 
we are of the light or of the darkness, for our fine equip- 
ment with its perfectly balanced relations may mean after 
all that we have learned but the smallest part of our subject, 
and that the full light of day has not yet dawned on us. I 
do not here urge details of dealing with men any more than 
details of the tools and materials we see, but I do urge that 
as the laws of nature are utilized by us all after keen 
inquiry into them in the mechanical and material side of 
our work, so the laws of human nature shall be given at 
least as keen study in the living and productive side of our 

17 



130 OUTLINES AND EXERCISES IN ECONOMICS 

work. For since both the laws of mechanics and the laws of 
human nature are but a partial manifestation in my thought 
of the Law of God, there can be no harmony and no basis 
for permanent peace and for the highest production until 
we have re-adjusted our factories so- that they operate in 
accordance with the laws of human nature . . . 

''With the men that enter our factories, enters the 
greatest force in all production ; I mean the responsiveness 
of those men to leadership. They work indeed because they 
needs must earn their bread, and it is needful that super- 
vision should be closely exercised for manifest reasons, 
but neither the need for bread nor the closest supervision 
will draw out the best that the workman has to give. That 
can only be done by the righteous adjustments of wage to 
product; by the absence alike of injustice and of charity; 
by the opening of the door of opportunity ; by the absence 
of driving and the presence of leading; by the selection of 
the man for the ta-sk and the adjustment of the task to the 
man ; by the instruction of the man in his task or if unfitted 
for it, then in some other task for which he is more fitted; 
by the spirit of candor and frankness between the employer 
and the worker ; by the willingness to hear and to wait ; by 
the closest possible touch practicable in great factories 
between the management and the working force. It has 
been said that corporations have no souls ; this is a pity, if 
true, for the men in the shop have souls, and the coming 
into the minds and hearts of the men that run the corpora- 
tions of sufficient soul toi give them a basis for appeal to 
and co-operation with the souls of men at the machines 
may make the difference between profit and loss to the 
corporation .... 

"Your machines are complex ; how much more so the 
man with his human mind and heart. But if patience is 
exercised, there is in the man the responsive spirit the 
machine lacks, and that spirit led and not driven, guided 
and not abused, is a power in industry of which the wisest 
of us do not yet dream. Without it, we may be able, or 
we may not, to profit temporarily. With it, the age of 
industrial conquest opens." 

4. What are the circumstances and conditions under 



DISTRIBUTION OF WEALTH AND INCOME 131 

which labor organization and labor legislation are looked 
upon as methods for improving the relation between the 
worker and his work Seager, 542-4 and 562-3. 

5. Compare and contrast the attitude of employers as 
exemplified in the following assignments with that set forth 
in Exercise 3. Do you regard either or any of the points 
of view presented as being exceptional in the sense of being 
impracticable? Hamilton, 594-6 and 599-600; Ely, 454-7. 

6. What is the economic ju'stification for labor organ- 
izations ? Ely, 445-6 ; Hamilton, 600-2 and 582-4. 

7. Under what circumstances and for what purposes 
do labor unions practice ''control of apprenticeship?" Ely, 
447-8. 

8. Discuss the practice of "restricting output" from the 
point of view of the workers and of the public. Ely, 449-51 ; 
Seager, 543-4. 

9. Discuss also the problem of the "closed shop." 
Hamilton, 608-14; Ely, 448-9; Fetter, 2:309-11. 

10. Discuss the use of the strike, the boycott, and vio- 
lence in connection with labor disputes. Hamilton, 614-24; 
Fetter, 2 : 303-6. 

11. Outline and discuss the agencies that are being 
proposed and relied upon for establishing and maintaining 
industrial peace. Ely, 457-61; Fetter, 2:325-31; Hamil- 
ton, 605-8. 

12. Point out as definitely as you can the influence of 
labor organization upon the wages and living conditions 
of the worker, upon industry and upon the public, for the 
purpose of being better able thereby to judge of the probable 
future of unionism in America. Fetter, 2 : 306-9 ; Ely, 

451-2. 

13. What can you say of the probable future of union- 
ism in America? Ely, 467-9; Fetter, 2 : 311-3. 



132 OUTLINES AND EXERCISES IN ECONOMICS 

39. Interest 
Outline: 

1. Definition and nature of interest. 

a) Interest, that portion of the social income attribut- 
able to capital. 

b) Loan interest. 

c) Imputed interest. 

2. Determination of interest. 

a) Productivity of given units of capital in industry. 

b) Limitations to the supply of capital. 

c) Interest must be high enough to overcome the sacri- 
fice of the marginal investor. 

3. Tendency of the rate of interest in progressive 
countries. 

Exercises: 

1. Define interest and give a brief account of the origin 
of the term. Fetter, i : 301-2. 

2. Is interest a payment for the use of money? Nourse, 
68s. 

3. Distinguish between loan interest and imputed inter- 
est. Ely, 493. 

4. If a farmer buys a wagon and gives his note for it 
with interest at 6% payable in 90 days, we say he pays 
interest for the use of capital in the form of the wagon. 
Would the farmer have, escaped the interest problem if he 
had paid cash for the wagon; will interest on the value of 
the wagon cease when the farmer pays his note? 

5. In what sense is capital in industry productive? 
Taussig, 2 : 5-8. 

6. "Why can interest be paid?" Ely, 495-6. 

7. "Why must interest be paid ?" Ely, 496-9 ; Taussig, 
2:16-22. 



DISTRIBUTION OF WEALTH AND INCOME 133 

8. What are some other factors beside a payment for 
the services of capital which enter into the cost of loans? 
Nourse, 693. 

9. What is the present tendency of the rate of interest? 
Is a rise or fall in the interest rate a hardship? Taussig, 
2 : 26-28 ; Nourse, 685-7. 

10. What is "the justification and social significance 
of interest?" Taussig, 2 :4i-43. 



134 OUTLINES AND EXERCISES IN ECONOMICS 

40. Profits 
Outline: 

1. Definition and nature. 

a) Profits, that share of the social income attributable 
to the services of entrepreneurs. 

b) Profits, a surplus arising after the expenses of pro- 
duction have been met. 

c) Profits, a payment for the services of risk-taking. 

2. Classification of profits. 

a) As to source. 
x) Competitive. 
y) Monopolistic. 

b) As to magnitude. 
x) Necessary. 

3;) Differential. 

3. Relation to the other shares in distribution. 

4. Importance in a competitive industry. 

Exercises: 

1. Describe the conditions under which profits may 
arise and indicate the general nature of this share of the 
social income. Nourse, 870-2; Taussig, 2: 158-61. 

2. Discuss the personal qualities and motives that 
enable men to get business profits. Taussig, 2: 161-71. 

3. Profit is frequently said to be a surplus arising after 
the expenses of production have been met. Illustrate the 
truth of this statement by reference to the income account 
of the International Harvester Company. Can this same 
method of ascertaining profits be applied to a smaller busi- 
ness? Materials, 815. 

4. In what sense is profit a payment for risk-taking? 
Materials, 795-6. 

5. How many classes of risks are there for capital and 
what are they? Materials, 796-9. 



DISTRIBUTION OF WEALTH AND INCOME 135 

6. Disting^uish between an entrepreneur, a speculator, 
and a gambler. Materials, 799-80 1; 

7. Under what circumstances and why is there a ''tend- 
ency of profits to a minimum?" Ely, 526-8. 

8. Are profits a part of price or a diminution of wages ? 
Materials, 790-4. 

9. What is the function of profits in a competitive 
industry? Ely, 538-40. 

10. Is the private taking of business profits socially 
justifiable? Taussig, 2: 187-91. 



136 OUTLINES AND EXERCISES IN ECONOMICS 

41. Socialism 
Outline: 

1. Definition and general explanation. 

a) Socialism, a criticism of the existing" economic order. 

b) Socialism, a plan tO' reorganize the methods of pro- 
duction so as tO' avoid the wastes of competition and 
to enlarge industrial opportunities for the masses. 

c) Socialism, a plan to reorganize present methods of 
distribution so as to make possible a more equitable 
division of the social income among the workers. 

2. Socialism and the production of wealth. 

a) Socialist criticism of the competitive order. 
x) Wasteful. 

y) Planless 
^) Restrictive. 

b) Substitution of government ownership for private 
ownership of the material instruments of production, 
so as to 

v) Eliminate waste. 

x) Give intelligent direction to industry. 
y) Enlarge the opportunity for labor. 
2) Merely extend existing institutions. 

3. Socialism and the distribution of wealth. 

a) Socialist criticism of the competitive system'. 
x) Unequal. 

y) Unjust. 

b) Socialist plan for distribution. 

x) Eliminate private property in rent, interest and 

profits. 
y) Pay wages on the basis of efficiency. 
^) Allow private property only in consumption 

goods. 



DISTRIBUTION OF WEALTH AND INCOME 137 

4. Objections to socialism. ' 

a) Provides no effective check to the growth of popula- 
tion. 

b) Provides no adequate incentive for individual initia- 
tive. 

c) Affords no guarantee of effective leadership in 
industry. 

d) Provides no adequate means for production and 
accumulation of capital. 

5. Socialism and social reform. 

a) Socially beneficial nature of existing institutions. 

b) Changeability, the dominant characteristic of these 
institutions. 

c) Abolition of old institutions and substitution of new 
ones, a chief characteristic of the socialist program. 

d) Readaptation to meet existing needs, the program 
of social reform. 

Exercises-: 

1. Give a brief statement of the general meaning of 
Socialism. Spargo and Arner, 3-5; Materials, 91 1-3; 
Skelton, 1-3. 

2. What is the socialist's criticism, of the competitive 
order? Materials, 911 and 913-20; Skelton, 16-39; Spargo 
and Arner, 19-29; Hamilton, 757-8; Bullock, Selected 
Readings in Economics, 668-681. 

3. What is the "central aim" of socialism? Hamilton, 

752-3. 

4. How would the socialist reorganize society so as to 

accomplish his purpose ? Hamilton, 754-7 and 764-8 ; Spargo 
and Arner, 224-8; Ely, 632-4; Taussig, 2:451-3. 

5. Outline and discuss the principal objections to 
socialism. Taussig, 2:460-73; Ely, 634-6; Hamilton, yyy 
7; Bullock, Selected Readings in Economics, 681-705. 

18 



